Updated from 11:41 a.m. EDTWhether your region heard a pop or a slow hiss, the housing market has deflated, and even the industry's top realtors' association is describing the current situation as a buyer's market. Existing-home sales were down 1.3% in June to a seasonally adjusted annual rate of 6.62 million units from 6.71 million in May, the National Association of Realtors said Tuesday. The results were slightly above economists' forecast of 6.60 million, according to Reuters estimates. June's sales were down 8.9% year-on-year, and the median existing-home price hit $231,000 in June, up 0.9% on the year. "The change in price performance is directly tied to housing inventories," David Lereah, the NAR's chief economist, said in a statement. "A year ago we had a lean supply of homes and a sellers' market, with monthly home sales at an all-time record high. Sellers have recognized that they need to be more competitive in their pricing given the rise in housing inventories. Home prices are only a little higher than a year ago." More to the point was NAR President Thomas Stevens. "Relative to the five-year housing boom, this year is a buyer's market in much of the country with plentiful supply," he said in a statement. Blame it on oversupply and a market that's returning to earth. Realtors say that the fierce bidding wars and inflated price tags are no more. Housing inventory levels rose 3.8% at the end of June to 3.73 million existing homes available for sale, which represents a 6.8-month supply at the current sales pace, the NAR says. By contrast, there was a tight 4.4-month supply at the same time last year. Moreover, Stevens said in an interview that inventory levels will continue to rise as appreciation and sales slow because the boom brought out a disproportionate number of investors along with the traditional home owner. "They're trying to sell their investment to realize a gain, and that will add more inventory to the marketplace."
He believes it will take 12 to 18 months to get through the houses investors and speculators will be putting on the block. "The market we were in was an unrealistic market for five years," Stevens says. "Eventually something has to change. History over time shows that real estate is not a short-term investment, and now we'll see a more sustainable market." Realtors nationwide say that sellers haven't yet come to terms with their new position in the pecking order, and that most retain unrealistic expectations about what their house will fetch. "That is exactly what takes place when the market changes," says Jim Gillespie, Coldwell Banker's president and chief executive. "The sellers want to cling to the fact that the market was red hot. They think, 'My home is going to continue to appreciate at its old superfast rate.' But it won't." Sellers, he adds, need to realize that price appreciation is more likely to be in the 5% to 6% range. "The days of 10% to 20% appreciation rates are over," he says. Gillespie believes that it will take six months to a year before the realization sinks in that the market has shifted in favor of the buyers. Seller disbelief is evident in Long Beach, Calif., where sales have fallen by about 22% year-on-year, but prices havn't significantly moved lower, according to Geoff McIntosh, owner of the city's Main Street Realtors. He agrees that buyers for the first time are getting glimpses of a normal market, but that sellers are fighting it every step of the way. "Sellers are very resistant to lower prices when they see that the neighbors sold five months ago or a year ago for a lot more," he says. " They're not willing to take significantly less than what they've seen their neighbors get."
Coming to terms with the new market dynamics is the first step, says Gillespie, and getting price estimates from at least two different real estate companies is the next. Moreover, McIntosh says that potential sellers may think twice now that the market winds are shifting. "Maybe the best decision is not to sell now," he says. "Homes aren't just these investments. It's where you live. Under normal circumstances, you have to stay in the house for two or three years before it makes any sense at all to sell, but this last cycle has caused people to think they can buy in January and sell in August and make money." While this may disappoint investors who bought at the top, it could be the beginning of a much healthier market. "Buyers will have more to choose from and sellers on the other hand won't have to feel like they asked too little because appreciation is soaring," says McIntosh. "When we're more in balance, both sides leave the table relatively satisfied, the agents have to work a little harder, and that's a good thing."