Is the Real Estate Market headed for a Seller’s Market?

Numbers recently released by the Northwest Multiple Listing Service (NWMLS) suggest that we might be about to see a seller’s market for real estate for the first time in five years. While this is welcome news, it comes with several caveats and the usual share of disclaimers, so dont go putting on your house on the market and expecting 2007 prices just yet.

True, there were 26 percent fewer homes on the market in 2011 compared to 2010, and pending sales were up 23 percent from the year before. That’s pushed the inventory of homes down to a 3.5 months supply. Typically 5 months is considered a balanced market.

But the last few years have been anything but typical. Though sales are up, a full one-third of sales in 2011 were from distressed properties. This number by itself is probably the main cause of the drop of the average sales price in King County during the month of December 2011 to $359,912, down a full $62,000 from the year before. Distressed properties are notoriously difficult sales, taking much longer and requiring both buyers and sellers to jump through numerous hoops before closing, which necessitates markedly lower prices to entice entry into the market. Furthermore, experts believe there is a huge shadow inventory of homes that will be put on the market by home owners and banks as soon as home prices start to improve, driving inventories up and keeping downward pressure on prices.

So, while the numbers look like they are trending towards a shrinking inventory and a sellers market there are still numerous pitfalls and potholes out there on the road to a profitable sale. Though there seem to be a few glimmers of light at the end of the tunnel for homeowners dont make any plans for that third refinance or a kitchen remodel anytime soon. For the time being, keep looking at your home as the roof over your head and not a piece of your investment portfolio.