Market Value vs Market Price
The Market is definitely crazy right now, with low inventory, pent up demand due to COVID, historically low interest rates, and multiple offers. we are seeing prices climb in many areas, especially in the entry and mid level markets.
Will the prices being paid now hold up in the future? How will this unusual period look in the long term? How is this even happening with so many people unemployed and so much uncertainty in the economy?
Hi, my name is Glen Kangas and I have been a Certified Appraiser in So Cal for over 27 years. My primary goal as an independent appraiser is to help YOU make INFORMED real estate decisions. I encourage you to subscribe to my Youtube channel and follow me on social media so you don’t miss any of my incredibly informative Vlogs!
In today’s Vlog, I will be discussing Market Value vs Market Price
Buying a home right now is like buying a home at a Movie Concession stand. At a movie concession stand you pay market price, there is limited supply, and in particular, no competition, you are a captive buyer. Not only that, the historically low interest rates make you feel like a diabetic with low blood sugar, you just have to have that candy! So what do you do? You pay the ridiculous price and buy a candy bar that is bigger than you really need.
In a normal situation, if you wanted to buy some candy, and you were not diabetic like me, you have many options; grocery stores, Target, WalMart, 7-Eleven, the gas station, and if it costs too much where you are, you can just go somewhere else and pay a reasonable price, and because of that competition, stores that want to sell it, price it more reasonably. This is true Market Value, when there is normal and balanced supply and demand in the market and buyers and sellers are not unduly motivated (pressured) to act.
What does that mean for buyers and buyers agents in the current market? It means you have to understand your short term and long term plans and goals. If you expect or plan to move and will need to re-sell your home in less than 5 years, there is a strong possibility that you may not be able to sell your home for what your are paying now.
The market will regain balance at some point in the next 6 months, year, 2 years, and when it does, the hysteria will change to a more normal market. And if interest rates move up even a modest amount from the crazy low level they are now, that extra pressure to buy will be removed.
What will happen to prices then? Prices will recede to more reasonable levels from the short term peak. Because remember, what’s going on now is not being driven by economic growth, job growth, or any of the other traditional factors to long term value increases, the market now is a result of multiple undue pressures happening at the exact same time, for example, the feeling of buying candy at the movies with low blood sugar.
Now if you are a buyer and you can afford it without extending yourself, and you expect to be in this home for over 5 years, or even better, over 10 years, and you are not doing an interest only or some other adjustable loan that will need to be refinanced in the near future, then it’s ok to make that purchase. If you, however, are having to stretch your budget tight to make it happen, or only expect to be in the home for 3-5 years, you may want to slow down and wait until the market is more balanced and you are more sure of your long term plans. Remember, if at these low interest rates, you have to pay, $50K, $75K or even $100K more, it may not even be saving you money in the long run, it’s a great idea to do the math.
So if you are a buyer right now, don’t just buy your home from the Concession stand like a diabetic with low blood sugar, take a moment to really analyze your long term goals, your budget and whether right now is a good time for you to buy. Buyer’s agent’s, take the time to bring these things to your client’s attention, because even though it may cost you a commission in the short term, it will help you keep a client for life, one who will not be mad at you when they have to sell at a loss in 2-3 years.
If you found this Vlog to be helpful, feel free to subscribe to my vlog and follow me on social media, and until next time …… here’s hoping that YOU make INFORMED real estate decisions.
