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Sales slowdown gives home buyers more leverage

By Jeff Lazerson

August 23, 2018

What I think: Last weekend, I spent four hours sitting an open house with a Realtor on a cute entry-level condo in La Habra selling for $400,000.

About 15 groups came through. Six months earlier, there were 50 groups coming through. One of my mortgage loan originators sat a similarly priced property in beachy Oceanside and had a similarly sparse attendance.

Are we seeing an emerging buyers’ market? If so, how should buyers and sellers react?

Here are some signs of a slowdown and even rising mortgage defaults.

According to Steven Thomas of Reports on Housing, every week somewhere between 11 and 15 percent of Orange County homes in the multiple listing service reduced their asking prices. That compares to about 7 percent last year.

Average days on market in 2018 is 43 compared to 33 last year.

Listing cancellations are 13 percent higher this year than last year.

Earlier this week, the National Association of Realtors announced U.S. home sales subsided for four straight months and are at their slowest pace in two years.

A report out earlier this week from Irvine-based Attom Data Solutions indicated notices of default jumped 20 percent from last year in July in the Los Angeles-Orange County metro area as well as in San Diego County.

We are seeing a slowdown. Perhaps it’s Trump headwinds from the tariff trading or perhaps this economic expansion is just running out of gas.

This week, there were some rumblings that the Fed might raise short-term rates just one more one-quarter percent bump in September. Previously, all signs were pointing to two quarter-point increases this year to slay the inflation dragon.

Interest rates are dropping. The last time the 30-year Freddie Mac rate survey was lower than today was April 19.

We are just 21.5 basis points away from an inverted yield curve, where short-term rates are more expensive than long-term rates. The last time the spread between 2-year and 10-year Treasury bonds were this low was August 2007, according to the Federal Reserve Bank of St. Louis.

Nine of the last ten recessions occurred about 17 months after an inverted yield curve.

Cowering homebuyers should recover their backbone. In other words, stand your ground. Do not chase overpriced properties. Walk away from unreasonable sellers who won’t fix the more expensive property repair items.

Use your own Realtor. Do not go directly to the always conflicted listing agent for representation because you’ve feared that’s the only way you’ll land the prize property. Only buy if you believe you will hold this property for at least five years.

Sellers, decide just how badly you want to sell your palace. If you are not serious, don’t list. Other than the Brady Bunch house, the days of overpaying are over.

If you do list your home, get real and reasonable about your price. Don’t be cheap about the fix-it list after the home inspection. Make sure your listing agent gives a bigger percentage of the compensation to the buyers’ agent. For example, 2 percent to the seller’s side and 3 percent to the buyer’s side.

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Jeff Lazerson - Mortgage Columnist since 2011