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Market Dynamics from a different perspective

I saw a question posted on Trulia.com recently from a user wanting to know when the market would return to normal. My first thought was: What is a normal market?

Is “normal” what we experienced in the last several years, or do we go back further in time to gain a proper perspective? How far do we travel back in time to get to that “normal” market? 10 years? 20 years? In order to define normal, we first need to determine a baseline as to what constitutes that definition.

American Heritage Dictionary defines normal as:
Conforming with, adhering to, or constituting a norm, standard, pattern, level, or type; typical: normal room temperature; one’s normal weight; normal diplomatic relations.

hmm… Seems like a circular reference to me…

In real estate, the term “normal” has come to mean a market in which there are an equal number of buyers and sellers to buy and sell homes at any given point in time. Statistically speaking, it takes decades of analysis and records to define that baseline, but what I find curious is that it is a fluid concept in that it is constantly changing, and is different depending on where you live. Someone living in Kansas will likely experience a “normal” market differently than someone living in Seattle. And, someone in their late 70’s might define it differently than someone in their early 20’s. This brings to mind a visit to the fair last week when I saw an antique gas pump that read $0.25/gal. An older man approached me, pointing to the pump and said “I remember when ____ (insert your favorite item here) was only $0.05”

Why do I bother mentioning this? Because after my first thought (what is “normal”), my second thought is: why does it matter?

Motivation drives the market, not the state of the market itself. In an up or down market, there will always be buyers and sellers. As a seller, if you don’t have to sell, what does it matter what the market is doing right now? If you are a buyer trying to time the bottom of the market, then you obviously aren’t motivated enough to buy right now, so again, what does it matter?

Let me provide an example for clarification: I had a seller tell me that if he had only sold his home last year, he could have sold it for nearly $100,000 more than in this current market. My question to him was “did you want to sell it last year?” His response was “no”. Last year he wasn’t a seller (let alone a “motivated seller”), so the state of the market had absolutely no bearing on his situation. This year, he needs to sell, therefore his motivation is driving the decision, not the market.

Bottom line: If you want to buy, then buy. If you want to sell, then sell. If you want to stay where you are, then stay where you are. If you’re waiting for the market to return to “normal”, it may never happen, nor does it really matter.

What are your thoughts?

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