Slow Market Puts the Pinch on Seller's Earnings

Q: DEAR BOB: I have been selling homes successfully for about three years. In 2005, I earned more than $100,000 in sales commissions. But my earnings in 2006 will be much less due to the slowdown in the home sales market. I'm not making as many sales as last year. As I read the newspapers and real estate trade journals, I'm wondering why the national home sales prices keep going up but the number of home sales is dropping. What is your view on today's home sales market?

-- Susan R.

A: DEAR SUSAN: You raise very challenging questions. The number of closed sales of houses and condominiums determines home sales volume. In most cities, that number has dropped in 2006 compared with 2005.

Nobody knows the reason with certainty. The modest rise in mortgage interest rates from the 5 percent to 6 percent range reduced buyer demand. Also, 2005 was a record year for home sales volume, so those buyers aren't in today's market.

The increase in resale and new-home inventory has decreased home-buyer urgency to purchase. The result is a buyer's market in most cities, with more homes for sale than qualified buyers in the market. Also, listings stay on the market longer than they did a year ago.

But don't be misled by the month-to-month changes in home sales prices, which, in many cities, are still rising while home sales volume declines.

Home sale prices are reported as median prices, not average prices. That means an equal number of homes are sold above and below the median price. This number is easily skewed from month to month by an increased number of expensive or inexpensive home sales. It doesn't mean the market value of a specific house or condo rose or fell.

The median price for homes moves more slowly than average sales prices, which tend to be more volatile and are rarely reported in the media.

Having been involved as a real estate investor and broker for about 40 years, I've seen many home-sale-price peaks and valleys. In a few years, home-sale prices were flat.

Over the long term, the price trend has always been up (about 5 percent annually nationwide, according to the National Association of Realtors). But median home-sale prices don't reflect the total volume of home sales, which is expected to be down in 2006.

DEAR BOB: I have an elderly relative who has owned several rental houses for many years. These properties are not well kept. When she passes on and the heirs sell the properties, will the heirs have to have termite inspections or can the heirs sell them "as is"?

-- Larry W.