Cause and Effect!

Real estate is experiencing an unusual adjustment these days. Unusual, because in the past, sales declined due to either high interest rates or economic slowdowns. Neither of those factors exist right now, so where does the blame lie?

Quite frankly, one of the biggest reasons that home prices rose to such artificially high levels was because of a frenzied degree of investor speculation. "Flippers" would buy and then sell homes just for a short-term gain. The truly negative effect that this activity had was to drive home prices so high that most median-income families could not afford homeownership.

Now, as prices come back down to realistic levels, more middle-class buyers are capable of making the purchase. Sellers are beginning to realize that they have enjoyed substantial gains in equity and appreciation over the last few years. A price reduction of five or even ten percent is unlikely to erase those gains.

Realistic pricing by sellers encourages more sales. As more sales happen, inventories will again drop. As inventories drop, home prices will begin climbing again (at a more reasonable rate this time). Real estate agents are prepared for the cycle to continue, and you should be too. There is no need to panic when pricing adjustments are actually leading to a positive impact on your financing ability and the long-term value of your home.