Lessons Learned in a Declining Market

As much as some people might like the idea of going back to a time 12 to 24 months ago, or more and selling in that market, reality prevents us all from doing that. What we can do is learn from recent experiences so that we are better prepared for the future.

There’s a saying among stock market investors that goes, “Your first loss may be your best loss.” I think there is truth to this remark and, with some modification, there is application in the real estate market as well. What it means is simply that if you purchased an investment, expecting it to go up and instead it goes down, don’t wait for it go back up, but recognize your mistake and sell, before it goes lower.

Get Ahead of the Market

In real estate the idea is slightly different. If you are planning to sell and the market has turned downward, resist the idea that you could have sold for more 6 months before and go ahead and sell now before the market declines more. I would go further and suggest when selling in a declining market get a head of the market – pricewise – and avoid the common practice of following the market. Rather than set your asking price slightly above today’s market in hopes of finding a buyer who will pay that price, set a price slightly below and work for a quick sale, before prices slide further.

What happens in all too many cases is sellers who set too high a price hoping for a good result keep ratcheting their price down, but find themselves always trailing the falling market. In the end they get frustrated and either withdraw from the market totally or they dump the property for far less than could have been obtained had they been more aggressive in setting the initial asking price.

Market Snapshot

In the the quarter of 2007 the market continued to be sluggish. The inventory remains high, even as some properties have been withdrawn from the market, or allowed to expire unsold.

The most significant trends of the year are the sharp declines in the number of homes sold, and in the median home price. For more perspective on median home prices, see the graph below.

Sonoma County Median Home Prices

This one graph depicting the median home prices in Sonoma County over the past 16 years shows both how sharply prices have pulled back in the current market, and how the long-term trend still reflects healthy appreciation.