Here’s something you don’t see often in real estate. We have the interesting situation of both rising home prices and a significant rise in the number of price reductions. Some of you may think I’ve finally lost it while others thought that has been the case for years.

Anyway, here’s what I see going on now. The fourth quarter has started off very strong with home prices through October being at the highest level of the year. Also the prices of what are sale-pending now pretty much guarantees that that is how the year will end.

But as I said, I’m also seeing many price reductions as well. Why is this happening if prices are rising? A few things come to mind. First, there was a scare from the Federal Reserve Bank, which indicated that the days of cheap money were going to come to an end as it was going to stop buying U.S. bonds. As a result, in the late spring interest rates shot up by almost 1 percentage point. That increase has turned out to be short lived and rates have backed off by 3/8 to 1/2 a percent. Mortgage rates now are around 4 1/8 percent.

Inventory has been very low since the tail end of 2011 causing the multiple offers we saw early this year. In fact, 2012 ended with the lowest levels we’ve seen here on the coast in many, many years.

As is typically the case, inventory does rise throughout the year, peaking in the third quarter and then it falls in the fourth quarter. This year was no exception. Comparing the end of October to the third quarter, inventory is flat as far as available inventory goes while the number of pending sales has dropped slightly to where we now have 92 available homes. The total inventory stands at 130.

I think many sellers hearing of multiple offers earlier in the year have possibly tried pushing up the asking prices above the last sales in their neighborhood. Things like that can only go on for so long but eventually, like the game of musical chairs, the music does stop.

So right now there have been 54 price reductions out of 130 total listings. Of these price reductions, 38 are on available homes and 16 are on sale-pending homes. The vast majority of these price reductions have taken place in the million-dollar and up price category. (Thirty-one of the 54 price reductions have come in homes priced over $1 million.)

What this means to me is that many sellers with high-end properties have been pushing up prices above what the market will bear. More importantly, we are approaching the time of year I affectionately call White Death when sales slow down for the holiday season that seems to last till around the Super Bowl.

So, for those of you with an unsold home now, it is the time to have a heart to heart chat with your Realtor about what it will take to get your home sold before White Death settles in. Holding more open houses isn’t the answer. It’s the price, plain and simple. Look at your price and compare it to what’s sold recently, not what people want and then adjust it accordingly. Having your home sit at the same inflated price for a few more months will not increase its appeal with buyers. The opposite is true. They will wonder what’s wrong with it.

Alternatively, you can take your home off the market before the holidays and try again later. The danger with that strategy is no one can honestly tell you what the market will be in a few months so that’s a gamble.

The bottom line is 2013 is going to be the best year we’ve had here for many years. For buyers, they should jump on the lull in the market. For sellers, ’tis the season to get serious.

Steven Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or at www.century21sunset.com

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