by Calculated Risk on 11/25/2005 11:28:00 PM

The Washington Post offers advice on housing: How to Sell In a Down Cycle

Pretty much everybody in real estate knows what's up ... the boom is well past its peak.
...
Instead of double-digit appreciation rates, look for 4 or 5 percent appreciation in 2006. Instead of mortgage rates at historic lows, look for conventional 30-year rates in the 7 to 8 percent range and a couple of points higher for subprime borrowers. Plan for slower-moving sales, more unsold housing inventory sitting on the market and scaled-back listing prices.

This is the "soft landing" scenario that many, but hardly all, economists expect to be the final phase of the current cycle. Others forecast harder landings if interest rates get out of hand in the frothiest cities of the West and East coasts.

Its amazing that "4 to 5 percent appreciation" is considered disappointing. I would consider flat nominal prices for a few years as a "soft landing" for housing.

Also, I think the WaPo article misses the key point in a down cycle: If you think prices are going to decline, and you NEED to sell, DON'T chase the prices down. Sell now at a discounted price.

The housing market tends to be inefficient because real estate prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices. This means real estate markets do not clear immediately, and what we usually observe is a drop in transaction volumes.

To be a successful seller in a down cycle, you must adjust your price down quicker than your competitors. Even though transaction activity will fall in a down cycle, a seller is only concerned with one transaction!

A final comment: Although I think the peak of the boom (in transactions) probably occurred last summer, I'm not sure the price boom is over yet. Inventories are rising, but activity is still strong in many areas. The reports this comming week on New and Existing Home sales, and Q3 prices from OFHEO, will be interesting.