Unless you currently have your home on sale or are thinking of selling it soon, signs that the real estate market in your area is softening may not seem important to you.
However, says Gerhard Kotzé, MD of the RealNet estate agency group, you should take note of them, because such changes can also affect your ability to finance a home improvement or borrow against your home.
And there are ways for homeowners to monitor their own areas. Early warning signs, he says, include:
For-sale signs staying up longer. "One or two may not signify, but if you see this becoming a trend, it would be worth your while to ask a reputable local agent to determine from comparative market analyses whether homes in the area are generally taking longer to sell."
More properties for sale. "A sudden increase in the number of for-sale signs could indicate a drop in demand or an increasing number of homeowners experiencing financial difficulties - and either way, the sellers will probably have to lower their asking prices in order to achieve a sale. This will, in turn, put a lid on property value growth in the area."
More "private" sellers. When a strong market ebbs, says Kotzé, homeowners are more likely to try to sell privately, believing that their property will be more financially attractive to buyers if they reduce the asking price by the amount of sales commission they would have paid an agent. "In practice, this is seldom the case, and their homes often end up unsold, but it is a market indicator to be aware of."
Of course, all property markets are cyclical, and a slight softening in your area may quickly be reversed, he says, if interest rates increases are not prolonged, the economy experiences stronger growth or high prices in a neighbouring area suddenly make your area look more attractive to buyers.
"What you really need to avoid, though, is a sustained downturn that could put you into a negative equity situation - where what you owe on the property is more than the sale price you could achieve - or the scenario in which declining values make banks reluctant to lend in your area, making it difficult even for willing buyers to purchase your property.
"But it isn't always easy to tell whether a market is in for a short-term dip or about to plunge into a long decline - which is why most owners, he says, should seek advice from a qualified, experienced estate agent before making a decision to stay put and wait for a turnaround, or to list their home for sale before things get any worse."
