Everyone is noticing it. As 2011 progresses more and more properties that have been on the market, sometimes for years, are having their asking prices slashed by sellers waving white flags and surrendering, as I always said they would have to, to the reality of market conditions. Added to the fact that most houses coming on to the market now are offered at more or less the right price, with just a bit of room for manoeuvre, there is definitely an increasing stock of properties priced to sell for buyers in Andalucía. And one agent I spoke to last week told me that after valuing a house at €350,000 whose owner thought it was worth €550,000 he declined to list it and quite right too, it is just such a waste of a buyer’s time to trail them around houses whose owners are living on another planet.
I reckon this trend is right on schedule. I have repeatedly said during the last two years, since activity levels started to rise in 2009, that I had a strong sense of déjà vu, it really has been just like looking in a mirror and seeing the downturn and recovery in the 1990s. Although the reasons for the 1990 and 2008 collapses are very different it seems to me that the evolution of the recovery looks very similar; a short period of total paralysis occurs as buyers completely disappear and sellers go into shock and this state holds for 6 to 12 months. Then a small number of buyers return to take advantage of the first big price reductions but while the number of buyers increases the majority of sellers remain in total denial for several more years. In many cases they turn down offers which with the benefit of hindsight will turn out to be well above what they will eventually sell for. Sellers notice that there are more buyers around because their properties are getting more viewings and they misinterpret this to mean that they can hold their price, choosing to ignore that buyers in this kind of market prefer not to buy rather than overpay. So the buyer walks and another overpriced property stays on the market. If I had €5 for every time I have heard a seller tell me that they are not ‘giving it away’ I would be a wealthy woman. Why is it they do not get their heads around the fact that there is no such thing as ‘giving it away’, buyers buy at the right price for today’s conditions. Get over it.
But then sentiment starts to shift, slowly at first and then gathers pace. In the first three years after the 1990 crash deals were being done but agents spent an inordinate amount of time trying to get sellers to drop asking prices but in most cases it was a losing battle and it has been the same for the last three years. But now in 2011 we can all sense a change in attitude; sellers see similar properties selling at 40% less than they are asking and they realise the game is up. And as the number of transactions increases we have more evidence of the trend to show them. For example, it is very unusual to see a house in El Madroñal under €1 million but one has just been reduced from €1.4 million to €995,000. I recently saw a well renovated country house on 6,000m2 and I could see from the documentation it had been purchased in 2007, right at the top of the market, for €940,000 and today it is on the market for €650,000 and that is exactly where it should be, around 30% lower than the peak. It’s not ‘giving it away’, it is just the right price for 2011. I have seen several fine quality beachside apartments recently that used to sell for around €700,000 at the peak that are now priced at €495,000. And in all these cases there is still some room for negotiation, say 5-10%.
What happens next? Well, if the recovery continues to replicate what happened in the 90s, and I believe it will, by the end of 2012 there won’t be any overpriced properties left in the market as all sellers will have surrendered, that’s four years of prevarication and delay and they still won’t get more than the property is actually worth at the time of sale. After that I predict prices will flatline for a couple of years before the best quality and best located properties start to slowly lift off the floor.