Let’s review the pricing expectations for 2013, and how this thing works.

Every seller wants more than the last guy, and buyers are willing to pay the same as the last guy.

The Compromise

Buyers and sellers agree to a price that’s a little higher than the last guy.

It’s a win-win for all.  Sellers get more than anyone else in the neighborhood has gotten for years, and buyers accept that the extra mustard is the premium paid for getting it done.

What is the acceptable bump? 1%-2%?

But wait, with tight inventory and smoking hot mortgage deals, it feels like 2003 again, when prices went up 20% in one year.  Won’t that happen again?

Let’s review the reasons that wild 2003-type appreciation is unlikely:

1. Today’s buyers are more aware of the values, thanks to extensive internet tools.
2. Today’s buyers are planning to stay forever, or at least the foreseeable future.
3. Today’s buyers know that real estate values can go down.
4. Today’s lenders insist on proper qualifying.
5. Today’s appraisals are closer to being legit.

In 2003, NONE of these conditions were in effect.  It will take another 5-10 years before buyers forget about recent history, and by then the baby-boomer tsunami will be underway, rates will be higher, and Prop 13 will be dismantled so the tight inventory will loosen up considerably.

Best advice for sellers and buyers?

Keep within 5% of comps, and only expect it if the property has superior qualities.

The biggest concern is that the competing buyers are likely to be less-informed, and poorly-advised.  If you are selling, still keep your price within 5% of comps to incite maximum urgency, and have your great listing agent conduct a proper bidding war.  If there are less-informed and poorly-advised buyers who are crazy about the home, then they will prevail and pay the crazy money.  But they will more likely to do so in a bidding war on an attractively-priced property, then an OPT.

If you are a buyer, you gotta let them go – or suck it up and pay the vig.  I am fine with continuing the search, there will always be others.  They might be at a higher price, because today’s sales are tomorrow’s comps, but that is a risk worth taking when you review items 1-5 above.

The lower-end segments of each market are really struggling with this topic, because the competition is fierce.  Take this listing, for example:

http://www.sdlookup.com/MLS-130000192-13011_Caminito_Bautizo_San_Diego_CA_92130

It is 1,699sf, and listed for $669,000.

The last three sales in the development were the same model or bigger, and closed for $570,000, $596,500, and $591,500.  Yet there are multiple offers on the $669,000 listing!  If they ask for your highest-and-best offer, how much are you comfortable paying?  And will somebody else just pay close or all the money to get it over with?

There will have to be a bunch of these to occur before calling it a trend, which is in the buyers’ favor.  For pricing to gain momentum, sales would have to increase further – but there aren’t enough homes for sale.  If we did see a handful or more new listings in this complex, they would soak up the waiting demand, which would minimize the upward pricing velocity.

If each of this year’s sales prices were around 1% to 2% higher than the last guy, then we’ll have a reasonable shot at a sustainable 5% to 10% per year for as long as rates are ultra-low (2-3 years?)

Though the media is always pumping hysteria:

http://realestate.msn.com/january-buying-advice-could-you-get-priced-out-of-the-housing-market-in-2013

Get good help!