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Just being on the market is not the same as being in the market.
To get a sense of this, let's look at a graph of houses on the market at any point in time. Here we have two criteria, price and condition. Taken together, price and condition equal value. The level of value determines where the house can be found in the graph.
Let's look at the price. Houses at the top of this line are priced above market value.
At the bottom are the houses that are the most aggressively priced. Discounted properties like foreclosures and short sales can be found in this area of the graph.
The other criterion is condition. On the right hand side, you have those homes that need the most work. They are in the least competitive condition and they haven't been staged well.
As you move to the center, you've got those homes that are in pristine condition. Think brand new homes -- or homes that don't need any work.
Buyers looking for homes in a certain area, in a certain price range will get updates from their real estate agent about which houses are available right now.
And you can be sure that buyers pretty quickly determine which houses are "in" the market, and which are "out" of the market.
In 2005, the market had expanded so that the market of houses that were "in" the market was much larger. Buyers would consider purchasing properties inside this whole area. And the houses in this area were attracting offers -- and they were selling.
In a buyer's market, this area contracts. A relative flood of foreclosures and short sale properties have shifted the picture in many markets, creating powerful price competition. This means a house that was in the market just several years ago is now out of the market.