$27.4 Billion Cut from Asking Prices Nationally

Fri, Jun 5, 2009

Every month at Trulia we run an analysis of price reductions for homes on the market to understand — have we seen the bottom? Is it a good time to buy? What does this mean for sellers? Without further ado…

Looking at all homes on the market as of June 1:

Easy math — if a home is priced at $500K, roughly 1 out of 4 times, it’s seen a $50,000 reduction in the list price. Ouch.

Key points from the report:

While nationally $27.4 billion was cut from list prices, this varies dramatically city by city. Manhattan saw $1.1 billion reduced. Meanwhile, San Francisco saw a “mere” 10% of that number, $110mm reduced from their list prices.
Luxury market is hurt more than most – in the past 12 to 18 months we’ve seen significant wealth wiped out in financial markets, and it’s showing in the real estate market as well. For homes priced $2mm and above, we are seeing, on average, roughly 15% reductions in price. Easy math — that means for a $2mm home, you are seeing a roughly $300K reduction on average.
There is little difference between price reductions for single family homes versus condos in big cities like San Francisco, Los Angeles and Boston.
Areas heaviest hit by foreclosures are seeing even more dramatic price reductions, as home owners compete with significant foreclosure volume and discounts – for example, Detroit is seeing 23% reductions in price, and Las Vegas is seeing 16%. Taking a closer look at Las Vegas — the median sales price is down 40% YOY. For existing home owners trying to sell their homes, that means they have to take an even more significant discount, and emotionally that’s a hard thing to do.

And…on the overall economy:

Prices are already at 2002 levels, according to the Case Shiller Index.
There is increased interest in foreclosures by homebuyers– roughly 55% of home buyers surveyed last month say they are at least somewhat willing to purchase a foreclosed home. And buyers expect big discounts — 40% of them expect a 50% discount on those homes.
The pace of unemployment might be slowing, but the rate of unemployment still grew to 9.4% (highest level since 1983), according to US Labor department. We still have a long way to go.
Existing home sales was modestly up 2.9% in April (mom), according to NAR, but median prices are down 15%.
Roughly 50% of purchases were foreclosures and short sales. Approximately 50% of recent transactions are from first time home buyers. Higher inventory and lower prices are driving more interest from this pool. Approximately 30% investors.

So what does this mean for home buyers and sellers?

Buyers - it’s a good time to be you.

See if you are eligible for a first time home buyer tax credit. The government wants to help move real estate inventory across the country and you should take advantage of that.
Talk to a lender to know your target price. Credit isn’t as available as some would like to spur a real estate market recovery. With your credit score, find out what you can afford and stick to it.
Start looking on sites like Trulia, and take your time. The market doesn’t appear to be turning around (though this varies market by market), so look at the inventory on your market, and don’t rush to bid up on a home that you like. Chances are there will be three more homes down the block available to you.

Sellers - take the emotion out of your pricing decision.

What you thought your home was worth 1-2 years ago, probably isn’t what it’s worth today. Look at recent comps and the number of foreclosures available to understand what it means to price your home competitively. If you need to move, you probably want to take an even more significant discount than similar comps.
With 50% of transactions being made by first time home buyers, you want to ensure that your listing is online — where buyers are looking. Quick tip - search on google for homes in your area — find out what sites that pop up. This is what buyers see, so make sure your home is marketed prominently on these sites. A good real estate professional can help you do this.
If you need to reduce the price of your home, consider taking a hair cut, not a trim. If your home was $500,000, consider taking 10% off to open your home up to a whole new group of buyers that are looking up to $450K.

Here’s a list of markets across the US with greater than average price reductions: