Predicting the Market Bottom

Over recent years, a favorite past time of most real estate shoppers, watchers, and pundits, has been to make multiple guesses as to when the market bottom has arrived, will arrive, or is arriving. Buyers who seek to time a market and purchase at the exact summit of the decline appear to be most interested in identifying the market bottom, and the rest of us who make a living off of such undulations in market prices work to understand the pitches and heaves to best represent our clients. It is obvious that buyers are anxious to recognize a market bottom, but there's one key group that is in such a hybrid state of panic sprinkled optimism it makes the Red Bull chugging, market timing buyers look downright lethargic: Sellers. I've gone to great lengths to dissuade buyers from holding their breath until they pass the sign that reads "Market Bottom Ahead", largely because when they do reach that sign, it will almost certainly read "For Market Bottom, Please Go Back 7 Months". There will be buyers who purchase during the exact quarter that the market bottom was left behind, but those buyers will have purchased at that time through either coincidence or divine intervention, not intelligent surveillance. It's important to note the way I addressed the market bottom, in that the buyer who purchases the moment the bottom is left behind is the biggest winner, but any buyer who purchases during the market bottom will ultimately align with the winners. See, a market bottom doesn't just happen, it forms over years and once that bottom is established, as it is in the entry level lakefront market here, we'll bounce along that bottom until the strength of the individual market is such that price increases can be tolerated and accepted by the buyers that make up the market. Buying at the moment the market begins its upswing is nice, but such a precise approach isn't necessary. Me? I'm just going to grab a shot gun, close my eyes, and hope I get close. The buzz surrounding my Lake Geneva market these days is that the market bottom has both arrived and been left behind. Some agents are giddy at the prospects of such a recovery, and someone, somewhere, is polishing their gold name tag and testing the magnetic strength of their car door advertisement in anticipation of the return of the glory days. Personally, I think the market is mixed at best, with certain segments experiencing a true, identifiable market bottom, and others just testing the waters at what those lower prices look and feel like. Other markets might have already been to the bottom and back, which is to say that even in a tight geographic market like Lake Geneva, there are handfuls of individual market segments that can and will all bottom at different times. And those three paragraphs lead us to this: There is much danger in a market that appears poised for a solid rebound, and that danger lies in the list prices of properties and the attitudes of those setting these prices. For an example of what it is I'm talking about, consider this hypothetical. I'm a seller, and I'm ravishingly handsome. I am also ridiculously rich. So far, so good. I also own a house at Lake Geneva. It's a vacation home, and my desires are no longer for a simple vacation home, but instead a massive estate large enough to house my toys, guests, and my ego. And one of those $15,000 eight minute workout machines. My property, during an 80 degree, cloudless July afternoon in 2006, was possibly worth $1MM. I listed the property in 2010 for $1MM, hoping a buyer might be easily persuaded. My property didn't sell, which was fine with me, because I'm not sure if you full appreciate how rich I really am. Fast forward to 2011. I'm still devastatingly handsome, possibly more so. And my property is still unsold. I now list my property at $995k, hoping the reduction will attract a buyer. I wait, in my Paul and Shark jacket and slacks. The buyer has yet to show, but now, with the market on the upswing and pundits, agents, and even some buyers proclaiming the market bottom present and nearly in the past, I am confident. After all, the market bottom has arrived, which means my property has a much better chance at selling. The clouds will clear, a throng of buyers will approach, and I, sitting tall on my saddled, blindingly white unicorn will finally achieve a sale at my asking price of $995k. This scenario, with or without the unicorn, is playing out everywhere right now, from Winnetka to Hinsdale to Lake Geneva. Sellers feel bolstered by proclamations of a market bottom, but they're missing a very sneaky little truth about bottoms. A property can and should only benefit from a true market bottom if that property has adjusted to find that bottom. If Mr. Seller, I mean me, If I, were to have listed my property for $995k, and slowly but surely adjusted to $795k, and now sold for a number that a buyer deems reasonable given the possibility that the bottom has indeed formed, then and only then would I be able to benefit from that bottom. If I stick at $995k, and wait for a buyer, I cannot reasonably pronounce the property a deal now that the market has bottomed. The market might have bottomed, and the true value of my property may have done the same, but if my asking price hasn't adjusted to find that bottom, well, then, I'm just a guy with a really shiny, remarkably well behaved unicorn and an price that remains equally as unbelievable. If you're buying in Chicago or Peoria or Lake Geneva, beware the phenomenon of the seller who has never made an effort to match the market decline and finds confidence in a recuperating market. There are traps in any market, but the traps that lie in wait during periods of nascent recovery are even more lethal. David Curry is a realtor with Geneva Lakefront Realty in Williams Bay, Wisconsin. He writes on the Lake Geneva and national markets daily at GenevaLakeFrontRealty.com/blog.