The current market does not favor buyers. I repeat, the current market does not favor buyers.
Allow me to explain. For months, if not years, you have been told that the glut of housing inventory makes for a buyer’s market of epic proportions. Why, the ancient Greeks themselves would write songs about the opportunities that abound for any would-be hero with a hankering for a house. The only problem with this suggestion? It’s just not true.
What is a buyer’s market? Most would define it as a preponderance of available supply and an accompanying dearth of demand. Let’s take a look at both aspects of that equation.
In a perfect financial world, a buyer waits for the market stars to align in just such a manner before swooping in to claim a nest at a fraction of the “normal” cost. It all works great in theory, but real world application necessitates that the prospective buyer be subjected to the same set of variables that has drawn down the pool of demand at large. It’s a buyer’s market when few have the wherewithal to actually buy.
Appraisal difficulties and tightened lending regulations are contributing to a somewhat artificial suppression of demand. The “want” is present in the market. Consumers want to buy houses. They want to take advantage of the greatly reduced pricing and sublimely low interest rates. Homeowners want to refinance their houses so that they can stay in them, thus contributing to the lowering of the overall supply.
Want has nothing to do with it. Without ability, all of the consumer confidence and desire does not translate to actionable demand.
So to clarify the lead-in to this post, the current Scottsdale Real Estate market does not favor ALL prospective buyers, as the “buyer’s market” connotation suggests.
Further, the favorable conditions for those who are in positions to purchase do not necessarily translate to negotiable strength. Well-heeled cash buyers, W2 employees with verifiable income, solid credit history/scores, etc will find that they do not call the shots to the extent that they were led to believe. The bargain bin of bank-owned foreclosures is incredibly crowded. You are elbow to elbow with competing consumers when a new shipment arrives. The mom & pop resellers, by and large, do not have the equitable flexibility to negotiate the 30-50% off of list price that many buyers envision. The short sale properties with the absurdly low price tags are, more often than not, pie-in-the-sky figments of the listing agent’s imagination. You submit an offer 10% off list price to the bank, which in turn proves to be 40% off the BPO (Broker’s Price Opinion) that is performed three months later. The bank tells you they will gladly approve the sale – for 75k more than you offered.
While the inflated inventory levels in the housing sector are cited often enough, it is not widely reported that the number of unencumbered properties available for purchase is far less. In a market that is most assuredly not of the “see house, buy house” variety, the redaction of readily purchasable properties (due to competition in the low end, and lien encumbrances across the full pricing spectrum) tilts the negotiation playing field back towards center. Neither party has a clear cut advantage when facing each other at the negotiating table.
The truth of the matter is that most of the savings that you can expect to uncover have already been factored into the asking price by the time a listing is brought to market. Sure, there will be those that require substantial negotiation, and plenty others still that simply fail to sell. Never underestimate one’s ability to overprice a house. These aren’t the homes you are most likely looking at, though. The ones that buyers are flocking to in droves are those that present the best value opportunities. And why not? Just be prepared for the competition that you did not think existed for said properties in this ballyhooed “buyer’s market.”
Trying to cobble “x” percent off the list price in circumstances in which others are offering “x” above the list price will only lead to frustration. Don’t get greedy. Do what it takes to lock up the lowest pricing the Valley has seen for seven to eight years (longer in some areas) while interest rates continue to hover around 5%, and you are well ahead of the game.
And lastly … smile. You are the guy that so many lament not being right now. You know, the hypothetical guy who spurs such proclamations at office parties and cocktail hours across the Valley:
“If I had two nickels to rub together right now, I’d buy every house on the block for less than I paid for my albatross back in ‘05.”
Originally posted at the Scottsdale Property Shop
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Excellent. It's way more complicated than many people realize and the media has not done consumers any favors in the way it reports on the real estate market. This post makes a lot of sense.
Paul, Superb analysis! Hitting the Suggest button.
Or not... since there's not one there??
No sooner does the news announce a "buyers' market", then buyers believe that it means that they should all buy a home.
Experience taught me long ago that if a buyer needed and wanted to buy a home, they would already be in the market when the media "discovered" the buyers' market.
That lesson was clear when the tax credit expired and those folks who would have purchased in May/June already did in February/March/April.
Oh sure, there are opportunistic buyers, but they are a mere blip on the graph.
Excellent Post, it is not a buyers market completly we are in a transitional market. Great JOB!
I still think its a buyers market as my sister just flew down from Boston last weekend to Boca Raton to look at properties. She found a 3/3 in a gated community for 68k and looked at more than 10 properties for under 80k that are at least 2/2. In Boca Raton, this is incredible as these peoperties sold for $180k when they converted from condos or $135k to build in 1996. I would say that if you know where to look or have a brother that works for foreclosure.com and can lead you to the great deals it certainly is a great time to buy and I would consider it a buyers market. The investors I am working with are getting homes for pennies on the dollar as REO's are plenty.
I think that while it's not an "any buyers market" it certainly is a "some of the buyers market". Prices across the country are much lower than they were just years ago so it's certainly NOT a sellers market (for ANY kind of seller). Now is a great time to buy a home if you are able to do it.
Heading off to some licensing coursework, but will try to address comments this evening. I think the last two missed the crux of the post. Prices are much lower, yes. I readily acknowledged as much. I simply suggest that A) fewer people are able to take advantage at present, B) the lower pricing does not translate to improved negotiating leverage and C) the disparity in property encumbrances leads to a slew of different scenarios that can hinder a purchase (thus reducing the overall pool of supply). This post deals more with the interaction between buyer and seller (who is in a position of strength once an offer is introduced) than the factors that have led to the well-established value degradation.
No one in his right mind would suggest that the precipitous decline in prices is not advantageous to a buyer.
Paul.. Excellent post. It has not been a buyer's market for a long time. It is now a *bank* market... the appraisers are the ones that are in the driver's seat.
If it is a buyers market then please tell me where they are all hiding since April 30th. Showings are down, pendings are way down and web hits are down 50%.
It is time to realized that we are in the new normal, homes will sell based on want, need and circustances. Not incentives, fear, excitement or speculation.
When will the lenders ease up? Any thoughts?
Paul it is said that "Beauty is in the eye of the beholder."
Apparently so is the perception about whether it is a Buyer or Seller market ;-))
I agree with the assertion that we are in a transitional market. There are properties that sell in 3 days for more than asking prices and others that languish on the market for months with several price reductions. I agree with Lenn that we simply borrowed our normal May/June buyers into the earlier months due to the tax credit. The media definitely makes the buyers think that they can get a steal of a deal in every market, but the truth truly is local. There are very few REO/Foreclosure or Short Sale offerings in our area. There is still an average of 97% or higher list to sales price ratio across the board in our MLS. Thank you for sharing!
Keep smiling,
Karen
Excellent post and examination of this crazy time in real estate...
Someone said it is a "bank market"...that pretty much sums it up for most buyers and sellers these days!
You mean to tell buyers, Paul, that a buyer's market is not as simple as supply exceeding demand? Exactly how many buyers are going to be converted by this new gospel?
A very lucid explanation..it makes sense, but I fear for the masses...
Paul, a few comments if I may. First off, could you re-write this in laymans terms so I could hand this out to any new prospects? I mean, I thought it was brilliantly stated, but it seems that buyers around here would just be confused more than they already are.
While I agree with the difficulty that's running amok in the buyers process of being able to qualify for a mortgage, for some reason, every buyer thinks that because they have a job, and rates are low, that they should buy a house. Not only buy, but Steal. This "buyers market", in their minds, means that they can go in and offer 20-30% or more lower than the list price. Try as I may, there's no way to explain to them that the discount they so readily "deserve" is already built in.
I called the "buyers market" over last September around here (Metro Detroit). Agents in my office thought I was nuts, and probably still do, but a lot of them still run their buyers around town, launching offer after low-ball offer at any house that moves, in the hopes of getting the best deal ever! And I have no interest in that.
Jane Pacheco
IN this area the best homes listed at good prices have lots of offers and the over priced listings just sit. So it is only a buyer's market for the less desireable properties if those homes are owned by people with enough equity to sell for less.
Marcy
Interesting perspective. Want, desire, ability.. to me it's all the same. They just aren't selling as much as they were last year.
Andrew Lenza sounds way too smart to be a Realtor.
I wish this type of post you wrote would be put out by the NAR in some form instead of all their national statistics which are meaningless for one individual buyer or seller. Not realizing all real estate is hyper-local and nuanced. There is one community where in a certain price point, 50% of the homes are under contract, and 4 miles down the road in another community, you can't practically give the houses away for 25% of the price. Artificial constraints when sellers can't short sell but don't have equity to price their home so the current market can absorb it, just creates bogus supply out there, that even if one unlucky buyer gets bad advice and bites, hopefully the appraisal process will shut it down. That said, we renovate homes as well and have sold homes for 300% of the mean value of the neighborhood in which foreclosures predominate when you bring something to market that someone actually wants to buy. I helped a buyer in a so-called strong buyer's market and they jumped on a house right away and ended up almost in multiples if they hadn't jumped so quickly as the home was special/architectural. So many variables...There is no substitute for keen insight, guidance and knowing one's way around, when to pounce, when not to, etc.
Thanks for this post - it breaks down and makes clear what's happening in the market. Cliche generalities can really cloud people's understanding of reality.
No it's not a buyers' market...but that's all they hear. I get tired of the bargin hunters who don't understand.
I would have to agree with Ken's comment that we are in a transitional market. As we try to strike a balance between banks rates and requirements. and and changes in home values.
You know, in hindsight, a title that might have better expressed the point would have been, "A Buyer's Market Is Hazardous to Buyers."
As many in the comment stream have adeptly stated, too many would-be buyers are relegated to the sidelines, and too many capable buyers are vying for the same properties (leaving the less available or desirable properties to languish).
I'd have to do some research, but I'd wager that the 40 some thousand listings that are active across the Phoenix metroplex (giving the impression that we are still well above typical supply levels) are saturated with non-sellable listings (whether short sales with no possibility of success, overpriced homes in which the sellers lack the equity to negotiate down market value, etc) to the point that the bargains that people are actually buying constitute an inventory much more in line with historical norms.
We hear a lot about the "shadow inventory" of foreclosure homes that have not yet been released onto the market by the various financial institutions for fear of killing demand by flooding the market, but there is a shadow inventory hiding in the plain sight of your local MLS: those number-padding, fictitious listings that give the false impression that more purchasable homes are currently available than is truly the case.
Nino - Lenza is, indeed, too sexy for his license. ;)
Paul, I think this is a powerful blog - lots of great and insightful information. Nothing's easy in this market, and I think people lose sight of just how difficult it is to be a buyer because there's so much attention on how hard it is to be a seller right now. Seems the pendulum is swinging way to far in the other direction, and until standards for buying homes become a bit less stringent, we're going to see no ramp up in this market--just more inventory clogging the market with nowhere to go because buyers cannot qualify.
WOW! This is well-thought but I'm having trouble applying it to my market. I'll read it again tomorrow, and maybe forward it to a few colleagues to mull this over.
I'd really like to comment... but I couldn't stay awake past the third paragraph. Fewer words, more pictures please. :)
Unfortunately, I fired my illustrator last week, Jesse. No worries, though, I am working on the first interactive pop=up blog book. ;)
I'll have to re-read this when I'm not so tired. I agree with the others, I think you're too smart for me. LOL
Well said, Paul. During the heyday of the Federal Tax Rebate, I explained to sellers with homes ideally suited for first time buyers that we're in a Seller's Market... as long as they properly priced their home. A properly priced home would have dozens (yes dozens) of offers within three-to-four days, affording the seller the luxury of choosing the best buyer/offer. That's a Seller's Market.
Where's that Microsoft stick figure dude who tosses a black bomb while doing an Irish jig? ClipArt = caffeine.
Bill, well said. The alleged buyer's market drives the pricing, but once a home is properly priced, you'll get six offers so fast you'll jump up and slap your mama. At this stage of the game, the seller is in charge. In this wacky market, the dynamics of buyer versus seller leverage can change just that fast.
Lenza - If I use clipart bomber guy one more time (he's my default for posts ranging from market reports to Wordless Wednesdays to Fontless Fortnights), Homeland Security will slap a GPS tracker on my laptop. Again.
Sorry for the spotty replies, folks. It's late and my steak is burnt.
How about a leprechaun with green hair afire? March 17th is only 245 days away.
I think I'd need to re-up with Microsoft Office if you want me to dip into flaming mythical misers. Not included in the free version. Settle for St. Patrick being asphyxiated by an anaconda with dollar bills for scales?
Your post title is a bit misleading and inaccurate, IMHO. As has been pointed out from other recent posts, real estate is a LOCAL MARKET. Such a statement does not necessarily apply.
A market is considered balancedwhen there's 5-6 months inventory (Source: REALTOR® Magazine, 2009). If inventory extends above this, then yes, it would be a buyer's market.
Depending on the location and price range, we have inventory that exceed 5-6 months of inventory.
Great insight. I too, live/work in the North Phoenix/Scottsdale market. Overall, in my opinion, short sales represent the best "deal" in today's market. One caveat... The listing agent must know what they are doing, and the lender(s) involved must understand the concept of a short sale being a better alternative to a foreclosure. Bottom line, if you're a buyer's agent, interview the listing agent. Ask them 4 questions:
How many lenders are involved/who are the lender(s)?
How many short sales have you closed in the past year?
What percentage have you closed?
For your past 10 closings, what is your average closing time from offer to closing?
If they try to hem-haw around these questions, move on to another house. You are dealing with an unexperienced short sale agent.
For the most part, in the Metro-Phoenix market, today's "traditional listing" is tomorrow's short sale. Obviously, there are a few sellers that this theory does not apply to, but they are few and far between.
In a perfect world, buyers agents would have nothing but "traditional" listings. Unfortunately, in our market, they are forced to deal with short sales, and take their chances on the experience of the listing agents. Tough deal, but it's the cards that have been dealt.
This post relates to Scottsdale, Arizona, Mike. I thought that was made pretty clear in the post. If it does not translate to your market, so be it.
What is considered a "buyer's market" versus a "seller's" market is exactly that at which the post takes aim. Such Reader's Digest labels, even when provided within the esteemed pages of our trade publication, are over simplified, easily digestible morsels lobbed to the hungry masses.
I appreciate your opinion, but I am trying to delve beneath the surface of such market indicators. You can't simply relate the current inventory to past markets through sheer volume comparison due to the disparate nature of their compositions. In years past, that 5-6 months inventory was much more homogeneous (primarily composed of typical resales) than the heterogeneous mess (much higher percentage of distressed and/or unsaleable properties) we have here in Scottsdale today. Until the striations in the inventory are acknowledged by those who assume the increased numbers mean increased viable selections, home buyers will continue to be misinformed as to their true purchasing strength.
I always enjoy a dissenting view, but you're comparing apples to chainsaws.
Robert, the only point I would disagree with is that a short sale represents the best chance at value. I've seen too many properties sell for considerably less after they come back as foreclosures than the offers the bank had in hand as short sales. Price considerations aside, I also worry about the time commitment required when rates are at historical lows. Concerns me what will happen to rates while my buyers wait on short sale resolution before they can lock. To me, they represent the option of last resort. I have placed clients in short sales, but most have opted for more expedient and cost-effective (again, my experience only) pursuits.
Hope to see you in the trenches.
Paul, I have many thoughts to share on your very good post but only some of them are literate and it's 1:30.
There may be a huge inventory across the country, but as you say, only a certain percent of the listings are "buyable". This isn't a technical term (and probably isn't even a word), but it is my definition of a house that can sell at market value (eg the seller agrees), can appraise (eg the appraiser agrees) and can be financed (eg a lending institution agrees to loan money on it). A buyer client who can educated on these criteria is much more likely to make an appropriate selection. Darn it, I sound like Grandma counseling a husband-seeking twenty-something to "make an appropriate choice".
When I go through virtually any community in my market, the number of buyable houses drops to a pretty small percent of the actual listings. Constrained ability to finance is the other side of the coin to the glut of non-buyable houses. Increased inventory actually restricts availability of credit (credit, not interest rates). Furthermore, what people want to buy isn't what the current credit markets say they can buy.
Now I'll drop my nut in response to some of the comments. List price is irrelevant to market value. You are absolutely right that cobbling a few percents off list price can be an exercise in frustration because in fact a house may be a better value than the other houses available that day. In fact, an agent should be able to show in detail the value of the house compared to the other choices on the market and what it can be appraised for -- and this can have nothing to do with list price.
It's called work because it's hard and we get paid for it. Please keep doing a good job in fighting the good fight to get people to think through the fluff that gets thrown out.
Great point about short sales! Buyers agents really need to double check the listing agents pricing, as well as which bank is involved, and how the short sale is being worked before writing an offer. Appraisals in the current market are problematic. Just as with Realtors there are good and bad appraisers, probably more bad than good. The trouble is, we dont have any control over whether we are getting a good one or a bad one.
Wow! You nailed it!
Great Post!
Please consider this a non-comment comment on your post, Paul. Here in Montreal, and indeed Canada, we have not been experiencing the implosion of "real estate as we know it" as you all have in many, many parts of the U.S. over the last few years. Nothing of the sort, in fact. Though prices dipped in some cities like Vancouver, Calgary and Toronto, they have started to regain their ground and the market was red hot this spring. Montreal seemed to be somewhat immune to the effects of the recession, though it did slow the market down in late 2008-early 2009 and prices in some categories held steady rather than increased (as they do every year unless we have political woes in the province -- but that's another story).
So why am I here?
Because I love it when a writer blows apart commonly held truisms. Yup, I've got a thing for myth busters.
There may be help on the way ,or at least a possibility , please read article from Washington Post ,link below.
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/08/AR2010070806803.html
Jeff Lanspery
JKL Financial
www.jklfinancial.com
Well said. One additional perspective if I may.
Humans have a need to put labels on "things" - it brings a level of comfort to them. People need these labels so they can easily define what is in front of them. Their conclusions may be wrong but it makes coming to a conclusion easier. This can be seen in music. From my very young days I have always been amazed at how many music listeners choose whether or not to sample new musicians is based on their labeled style. "I only listen to Rock" "I hate RAP" "Country Music is terrible" and so on. A great many musicians have background in multiple styles which influences their own performances and people miss out on some great music.
As for our industry, history tells us that it's either a buyer's market or a seller's market. It is perceived as a binary question. So if there are more sellers than buyers - it's clearly a buyer's market and vice versa. No other option makes any sense. Used to be true but not so today.
Certainly this is a transitional market - but what is it transitioning to? My own perception is that no one really knows.
I start all conversations with buyers by explaining we cannot assume anything about the market. We should pick a house they like and then we'll analyze the market conditions surround that particular home.
IMO, the old expression that R/E is local is totally epitomized today. It's so local that it each house really is different than the next door neighbor. Every homeowner who is selling has so many unique details to their story that you have to research that specific house to determine the value. The days of automated CMAs are gone.
As Realtors we have to be very nimble and we have to prepare our buyer clients to be nimble as well.
Well Said Paul!
Great perspective and right on point. In order for it to be a "buyers market" there has to be buyers. Have the buyers dropped off the planet in your area too? This is the craziest thing I have experienced in my 11 years in RE. So if this is not a "buyers market" and it certainly is not a "sellers market" and we are not experiencing equilibrium then what is the term for the market? The first half of the year was rather robust in sales while now....reminds me of that song: Dust blowin in the wind.
Nice way to deal with that objection if it comes up!
Great posts and lots of insightful comments. It's not easy on any front. This is the new reality of real estate.
Interesting post. I do not agree that it isn't a buyers market though. If sellers need to negotiate 30-50% to be a buyers market than you are correct. However if available supply is high, demand is low (due to outside factors or not), and prices are lower because of these things, than it is a buyers market for those who qualify.
One of the reasons you stated that it isn't a buyers market is "The truth of the matter is that most of the savings that you can expect to uncover have already been factored into the asking price by the time a listing is brought to market" Seems to me that it is the final price that counts. Not how much off list price but how the home is priced compared to the market that your buyers should be looking at. I teach my buyers that starting prices don't matter, the only number that counts is the final negotiated price.
So true. Anyone who has had to submit 20 or more offers for a single buyer can attest to this fact.
Hi Paul, funny post. I do think that it's a buyers market though, it's just that buyers don't have any buying power at the moment. Whether that is true or not, I can definitely tell you that it is not a seller's, banker's or builder's market!
Hi Paul. Buyers market. Sellers market.
I don't know. But it is tough out there!
Thanks for writing,
Ken
Great description of how the market actually works. I often say that the houses that can be bought at a discount are the ones you don't want.
Paul - You're picking up more comments on this post over at my re-blog:
http://activerain.com/blogsview/1743720/it-is-not-a-buyer-s-market
Well, then I would say that if you are well qualified and looking (at least in our market) in the 250-500K price range, then it is indeed your time to shine if you're a buyer.
Remember that the keywords are "Well Qualified"!
IT IS A BUYERS MARKET read this again and again.
Here is the problem (in my opinion) that makes it difficult for brokers in the field today short sales.
That has created an illusion that there is not a buyers market as every buyers waits for the bank to act.
In reality here in CA no house that is not priced right moves.Period.You can get ten offers and work fifteen hour days, get to escrow and the whole thing, but if is not priced right or had a high accepted offer due to multiple offers it won't close escrow.
The market here has lost about 40% of its value since the pick of several years ago.My bet is that is going to loose 15% more at least the next two years.Many cities have already start citing banks for damaged and unsafe houses in their possession that will force many banks to be more flexible and will create an increase in inventory.Now as far as lending goes and founds available it doesn't seem to come in to play.Most people that look for opportunities are paying cash.
Unfortunately, national news keeps saying that it's a buyer's market. A bit of 'wag the dog' if you ask me. HDTV doesn't help either. The media creates a false sense of reality and not all buyers are sophisticated enough to make the distinction between reality and hype. There are certainly little pockets of opportunity in every market, but in some sub-sets of our market, the sellers are in control. Often time those sellers are the banks.
Our job of educating clients is probably more important now that ever. It's once you get in the midst of the sale or purchase with a client, they begin to see just how complex a particular market can be. I see it as opportunity for us to help them analyze and evaluate, hopefully putting the kabash on the idea that real estate is easy.
One of the most interesting this about this post is the "global' perspective of the replies. Talk about a snapshot of real estate in the U.S. and Canada! And it's all right here on AR!
Thanks for clarifying some of the misconceptions about today's market. It definitely isn't a Buyers Market in a traditional sense. Also many of today's buyers are sellers of their current home who have to deal with the same issues of down market.
Lydia
A buyer is someone who is ready, willing, and able to buy - not wishful thinkers. Maybe in your area buyers are not doing well, but in my area, it is a strong buyer's market. I can get homes a block from the beach for under $50K.
Gosh, you read my mind. One of my buyers just last weeek uttered the dreaded,, "It's a Buyer Market." I hesitated and replied, "Well, not really." My explanation to them was over their head to some extent, but they still waqlked away with a different perspective and a very different attitude about what it might take offer-wise to get a home.
Thanks for the reminder of that conversation.
AMEN! I just had this same conversation with one of my buyers yesterday who can not connect the dots between what the media is saying and what is actually happening in the marketplace.
It is a lender's market as I see it. Some might argue it is a govt. market since they are propping it up and keeping the market from collapse.
It's hard for a buyer to get the upper hand in these transactions nowadays, though it is possible. I have found several very good deals for some of my clients who I met in late 2005 and instructed them to wait to buy. Three years later I called them and told them to get in the market and buy. They waited and three years later they purchased their homes at half price and are delighted. Whatever we want to call this market, there are opportunities to be had, and I submit that 10 years from now, those who have purchased a home today will look back and wonder why they didn't buy a handful of houses when they see the values in 2020.
I think the times are a changing. Instead of me making ten phone calls and leaving messages to list agents to find out if they are still accepting offers, this Monday after a weekend of showing homes to my buyers the list agents were calling me for feed back??? I know the stats are saying the sales have dropped since the FTHBTC expired but there seems to be "New Buyer" coming into the picture. First the FHA, Va buyers are back in there looking and now I am getting calls from the other end of the spectrum over $500,000 buyers with 20% down conventional. Just when you think you have it figured out "shift happens"! And no more appraisal contingency removal the price is what the buyers lender appraises it at period!
Tere Rice Realtor*
www.temeculranchandhomes.com
Paul,
A thoughtful post and thank you for sharing your thoughts regarding conditions in the Valley of the Sun. Here in southern Florida the market has been amazingly strong and we have been seeing some fantastic activity across all price ranges. We, like you in Scottsdale, have a large number of foreclosures that are in such terrible condition nobody wants them and couldn't finance them if they wanted to buy. Investors snap them up once the sellers (banks) lower them to such a ridiculous number a cash investor can buy them, invest significant money and hopefully re-market them at a profit. These listings are usually in the lower segments of the market and impact how real the "inventory" numbers are. Condominiums are down so far in most developments that they will provide investors a nice return and little risk but most of these are small deals; $150,000 and lower.
I just reported in my blog that in my home town of Jupiter the median price of single family home has just increased for the 4th straight month, increasing that median price 10% from $300,000 to $330,000. Sales in June were at their highest level of the year and again we saw increased activity in all price ranges. As we all know, the $8,000 certainly was not a factor is sales of homes above $500,000. If I look at current inventory levels some of them are downright scary while others are more manageable. Based on June sales volumes (remember these were the highest levels of the year) here is where current inventory is;
0 to $150K - 7.5 months and again a lot of "unsellable" stuff
$150K to $300K - 5.2 months
$300K to $500K - 5.6 months
$500K to $750K - 22 months
$750K to $1M - 19.3 months
$1M+ - 46.3 months
I would contend we are in a very strong buyers market for luxury homes and are seeing more and more foreclosures in these ranges. A buyer holds the cards and with the right agent should be able to negotiate a smoking deal. I am expecting a "hangover effect" on lower priced properties but it is too early to see how significant that hangover is. Might by a couple glasses of wine all the way up to an entire bottle of scotch!
Our "dirty sales", either short sales or REO's, are running about 31% in line with national averages but far below what you are seeing there in Arizona who along with Nevada and California seem to have much larger numbers if I believe the figures the national press reports. As of his morning, interest rates haven't moved this week and are an incredible opportunity to buyers. I update pending data towards the middle of the month and we did see a significant decrease of 18% as of 30 days ago and it is something I am watching closely this month.
That being said, I am receiving more buyer inquires since the tax credit expired and most of the clients I am working with are finding it extremely easy to qualify for and obtain financing. Certainly there are clouds ahead but from what I see here in my market area it is blue skies at the moment.
Best of luck!
Great post! I'm working with an investment property buyer who wants a deal that I don't think exists. He gets outbid on bank owned properties because he wants to offer less than the asking price. In my experience, the bank owned properties that aren't priced too high sell for more than asking price every time. I think the short sale properties that are priced way below what the bank would accept makes buyers think that's what the market value is for similar homes. Buyers do not understand short sales and that many times the price they see online for a home is way below what the home will actually sell for.
Paul,
Well said! There are no absolutes in this market. In my area, the absorption rate in surrounding communites is 2.7 months. Ready, Willing and ABLE is still appropriate. The emphasis is now on Able.
Very insightful post. I would have to agree with you. We are also experiencing a "not a buyer's market" here in Northwest Wisconsin.
It's probably beyond time we stopped applying labels to the real estate market since it's done a great dissservice to buyers and sellers in every area of the country. In every market there are nuances at play that will regulate the supply. Whether it's the supply of homes that can't be sold due to short sale timing, overpricing or undesirable locations by the time a buyer applies their "must haves" list, understands what their money will buy and then matches that with available supply I'll grant you that there are few circumstances where the supply of inventory will be so large that they can pick and choose from the lot.
How's that for a run on sentence?
As part of our required education we should all be able to articulate this for our markets. Simply reiterating the pablum dished out by the NAR for buyers and sellers markets does the consumer no good. Realtors who can slice down a market and understand the nuances are the true professionals among all. Dumbing down the information isn't the answer but showing it simply is what helps buyers understand the fallacies of the media hype. Unfortunately with many they have to get through failure 101 before they really start to listen and get to a successful transaction.
I've stated this simply to buyers before:
1) Look at the broad availability of homes in the area you want to live. (Salivation at all that inventory!)
2) Apply your must haves: bedrooms, schools, price range, availability for your time frame. (Not so much salivation now)
3) Really look at the homes and understand if they have sellers who are realistic, can appraise, financing is available, will allow you to lock a loan this century. (A little panic starts to ensue)
4) Understand that if you are looking for this kind of house so is someone else and the likelihood that you will compete for this house has just increased substantially. (Hard core reality sets in)
Josette
Nice post - lots of ways to look at the market, aren't there?
Well thought out post. Credit scores are killers for potential buyers currently.
We can take a general view (macro) of the market and put in into a single overall market category. It really does not work like this at all. And this would be particularly true of the Phoenix market. You see, the entire market is broken out in smaller market segments (micro) that behave differently and separately, and for argument purposes the best way to define those segments is by price ranges.
If you read the MLS stats and analyse them, you'll see that the less than $400k market segment, particularly in the $200k market, it's a buyer's market. The $400k market is rather balanced at this time and the $500k+ market remains a seller's market, and the $1M++ is a strong buyer's market.
Now combine each individual market segment and subdivise it into smaller segments by location or area, type of properties, total inventory and DOM. Each one will behave separately. There are market segments where you cannot purchase a home, it hits the market and buyers pay more than listing in 24 hours. Case in point, I had a young well qualifed couple who wanted a home in a specific area and it took us 4 months before we could find and buy a home.
Conversely, there are markets where you cannot sell a house, you'll be out 2+ years.
Just an observation about short sales. I'm not sure I agree with you. If you watch very carefully market behavior and the latest statistics by segments, mostly by city groupings and do comparables, you'll learn that on average REO sell per SF for more than resales (no deals in REOs) and that short sales are very well aligned per SF with the sales of resales. The listing price of an REO or a short sale may be unrealistic at the end of the day, that's marketing (whether good or bad), but at the end of the day, it does not matter, what matters is how fair market value is established and how the sold price relates to other sale categories.
What we see in this general market are the different forces of the market in action and we need to observe and study the numbers by segment at the time you work with a client and adjust accordingly.
Too. Many. Comments.
Cannot. Breathe.
Mayday ... Mayday ...
To the numbers in comment #69:
There are 40 homes over $2M available in Bethesda. There are 3 under contract and 6 sold since the beginning of this year. By any reliable means to report this data it looks like you'll get a "smoking deal" and can have your pick among those homes. But...
The buyer still has requirements that have to be met: a closer to Metro location, not "spec" built, a style they like, timing that works because their house in another city is sold, and financing. The list just went down to only a handful of homes at which time the months of supply on market becomes somewhat irrelevant. And unless they are all cash they will still be difficult to finance because the banks are skittish at this level of $$
Not a buyers market.
it's a lenders market. the underwriters are the gatekeepers.
Paul I loved your post. I represent only buyers in the Phoenix/Scottsdale area and I could not agree with you more. I tell my buyers two things, the market is treacherous out there and don't look for the deal on top of the deal. When something great comes on the market and is priced where it should be, be prepared for multiple offers. I also believe that the traditional sales that are priced fairly carry and "extra value" on them to many buyers now. That being not buying a property "as is" which can end up costing $1,000's of dollars and limited warranties. Short sales, I'm sorry they too are "as is" and now because of the liability to listing agents more of them are advising clients to seek an attorney's advice as it should be. But with that advice now comes waiting for an approval from the lender which it took weeks or months to get and now an attorney may also be involved in what they advise their client/seller to do about the banks offer to them. And yes then there is the competition of the "cash buyer", sorry Mr. Buyer your pre-qual with the bank just does not cut it.
I could go on and on regarding this subject.
A buyer's market, I don't think so.
Great explanation - We do have a BUYER'S Market in CO in CERTAIN pricepoints in CERTAIN areas. Just like you mentioned the low end is highly competitive, with cash investors and 1st timers battling it out. I work with both and have to explain the hiccups that exist.
We have less than 3 months inventory under $ 200K (condos excluded). The real sweet spot for many suburban towns in Denver Metro is the $ 450-650K. This is because many need JUMBO financing which requires a minimum 20% down and tight underwriting. We don't see alot of people with $ 100k down, with great credit, and can navigate the lending maze.
I remember saying back in 05 (when colorado started to unravel) and the BUBBLE states were inflating that VERY FEW PEOPLE can make a 6% mtg payment on a $ 400K+ mortgage month in an month out. The taxes, insurance, upkeep, etc.- is what buries alot of people. The luxury end will be feeling it for some time.
Lose lending allowed a lot of PSEUDO rich to buy INFLATED homes. We should start seeing interest rates work their way back up to 6-7% in a year or so, How do you think the higher end will fair then?
Now you have done did it...You let the cat out of the bag. I can't wait for the media to beat it like a dead horse. lol
I screwed my comments (#76). It should read that the less than $400k is a sellers' market and the $1M+ market is a buyers' market.
Paul:
A lot of deep analysis and thinking obviously went into your post. Here in East Central Florida, I have not only had to think outside the box, but live outside the box as well. So far this year, two of my sales have been with seller financing at substantially lower prices than the sellers would have been happy with, but what is there to do?
The sellers, if not willing to negotiate SERIOUSLY, will just be left holding the property while our NASA Chief, Mr. Bolton, has been redirected by our president. Quoting an Al Jazerra interview, "My primary job at NASA is to reach out to Muslim countries".. Now why did I have to throw that in? Well because we are losing a direct 7000 jobs and probably 14000 just in E. Central Florida because of our stepping away from Space Flight as we know it.
Back on point. So my buyers and I simply walk across the street to the next seller if a property owner/seller isn't serious. I believe that would be a buyers market.
And don't get me started on all the local agents who know what their sellers thoughts are, know what they will say, and refuse to take offers to them "because they know what their sellers will do". That is a BLIVIT.
And a BLIVIT is when you try to put 5 lbs of something in a 3 lb. bucket.
I'm selling property and I'm lovin' it because I LOVE MY JOB !!!
This was a great post and oh so true! People believe it is a buyer's market and it is IF you have the credit scores, job history and money for the downpayment. On top of that, put in a reasonable offer and don't waste time on short sales that will probably never close!
We have the same kind of market. And what people do not realize is that the "savings" have already been factored into the price. I have ignorant people who will not listen look for the cheapest properties and then try to come in 10 to 20% under asking. They learn quick.
Great article. Thanks for writing it. Posts like this are what AR is all about. I love to read the various opinions. I agree with most of what you have said. The only disagreement I have is that cash buyers have a strong position. That is especially true in our second home market here in Coastal North Carolina.
It's a buyer market when somebody actually buys :)
Great Article!
Thanks for posting.
In the SF Bay area it is still very competitive in the desirable neighborhoods. Every offer that I have made this year has been in a competitive situation. Even in the lower end markets which are being snatched up as rentals, there are multiple cash offers to the point where asset managers won't even look at financed offers. There are still good buys if folks are patient. After being out bid six times this past spring, a client is getting her offer accepted on a short sale house. House had 7 bids when it first came on the market but didn't appraise. Bank wouldn't reduce the price so...after four months, they put it back on the market and starting over with my client.
Wow, this is an incredible post, and very interesting comments in response.
I had never thought about "buyer's market" in this way. Paul, I think you nailed it. It is only a buyer's market when the buyer is well-qualified, great credit scores, secure verifiable income, etc., AND he/she is looking at non-distressed homes (i.e., excluding the short sales in which the listing agent doesn't know how to price the home or move offers through the system).
In Charlotte, in some upper end neighborhoods, I've seen some formerly beautiful homes just disintegrate before my eyes as they were vacated and left to rot. I had a buyer for one of these properties. But the listing agent didn't have a clue, and the bank wasn't going to lend money on a home that was in such a state of disrepair. My buyer would have bought it, for a fair price (considering the need renovations/repairs), but he was "stuck" because he couldn't get financing, and the listing agent didn't know what a hardship package was.
What national news always fails to say is that real estate is always a local market. Every community is different.
I've talked with agents in markets where a buyer with cash could come in and have their pick, because hardly anything is selling at any price. And, as seen in the comments here, in other markets there's extreme competition among buyers.
I think defining this as a buyers market has to depend upon exactly how you define a buyer's market - and your location.
The only thing that seems constant nation-wide is that even solid buyers are having trouble getting home loans.
Paul, you're like a refreshing breeze. Thanks.......Kay
It totally depends on your local market and sub-areas of that market. Here in Houston TX we have totally depressed areas where prices have dropped ect, we also have areas that are in very high demand, that are a sellers market and are still appreciating in value.
While the article in general is true, it should emphasize the importance of a good real estate agent in understanding the nuances of the local market, pricing, property history etc and not to rely on the 6:00 news for real estate market information.
Paul:
Thanks for hitting the reality button with your keyboard strokes. When someone asks me how the market is I have to decide how much time I have to answer. Since I'm also in Scottsdale, I'm on your side on this one! GOOD POST!
So a buyer's market is subjective to the location and local market, just like local market statistics. Wow, wish the media would pick up on that little tidbit, and stop lumping the entire nation into one barrel.
I think it depends on your market. Many people in my area thought it was a buyer's market during the tax incentive and there were some homes that sound over asking price .. now to me that's a seller's market. This is all Economics 101 ...
Good market - Bad market. It's a PERCEPTION that there are less buyers out there when the market is bad, the inventory builds and we call this a "buyer's Market"; If there appears to be more buyers out there and inventory is flying off the market, we call this a "Seller's Market"..........so is this a Buyer's market or a Seller's Market???
I've heard that as a rule of thumb, you need to look at the absorption rate and a balanced market would be a 6 month supply. Less than a 6 month supply is a seller's market, more is a buyer's market. Las Vegas has been in a seller's market for at least the past year with a 3-4 month supply. Since the end of the tax credit, we've seen an increase in supply.
Keep in mind, absorption rates and the category of "buyer" or "seller" market change by location and price range too. You may experience a seller's market in Las Vegas for homes priced $100k-$300k, while being in a buyer's market for homes priced over $1M in the same city.
It is a Seller's Market with Buyer pricing!
It won't be a true buyer's market until the employment sector comes around and we see a steady labor force.
Well said. The true buyers in the first time home buyer price range are many times investors purchasing distressed properties. The problem then becomes there is no benefit to those sellers moving up to purchase their second and third homes. For those able to sell, they will certainly benefit in the higher brackets due to the lack of buyers able to purchase. Many great perspectives offered here, very well written!
Good post. The inventory is bloated with a number of not so desirable homes in areas that look like a forest of for sale signs.
If you want a "normal" house in an area that is desirable (schools, infrastructure,etc.) and appealing you are liable to wind up with less to show than before the "crisis" took place.
The distressed homes are just that, and I'm not referring simply to the price.
You definitely hit the nail on the head with this one! Unfortunately, many buyers think that they are able to offer 80% of list AND then ask for a slew in closing costs only to find themselves in a multiple offer situation in which they've been astronomically outbid. Happens quite frequently in my market. Education is key!
great post! and it is so true!! also I think the buyer doesn't much supply because of the foreclosures that get lots of buyers and selling for much more!! so I think the market should be called "Seller's (Banks) market"
I do not agree with you. You are calling people who would like to buy a home but can't afford one BUYERS.They are wishers and lookers. Buyers are the ones with jobs, money, credit and who are serious about it.
To them it is a buyers market, lots of homes, lower prices and super low interest rates for mortgages......
IT IS A BUYERS MARKET...YOU WOULDN'T WASTE YOUR TIME WITH ANYONE WHO DIDN'T HAVE MONEY, CREDIT A JOB AND DEEP DESIRE TO BUY...BECAUSE THEY WOULDN'T BE BUYERS.
Thank you for your opinion, Larry. Adept use of the caps lock key notwithstanding, I disagree with your assertion. Whether or not you separate would be buyers from real buyers (which holds merit), your argument loses steam, at least where my market is concerned, right about here:
"lots of homes, lower prices and super low interest rates for mortgages......"
I urge you to re-read the passage about the composition of the available inventory. The raw numbers make it appear that a buyer can't fall in any direction without landing on a viable property, but that is just not the case. For the sought after properties with an actual potential to sell, the competition is fierce. I have had more difficulty placing buyers into homes in the past 6 months than at any time in recent memory, even our local heyday in 2005. Why? Because most of the inventory is garbage. If a buyer is in the market for a garbage listing at either an inflated price or with no chance of gaining lienholder approval, then by all means, it is a buyer's market.
If you are in the market for a luxury home in Scottsdale, Paradise Valley, Phoenix, you hold considerably more cards than the first time and mid-range buyer. To label this mixed bag of tricks a "buyer's market," however, is as reckless as it is erroneous.
Paul,
I am not going to go into any depth because many have above. I was going to comment last night and I was just beat so I decided to look up your post this AM. When I got to work I overheard someone in earshot "It is not a Buyers Market". I was befuddled. How does someone that is not very computer literate, which she is not, come out with this comment on a post that I read last night? I said "where did you hear that"? She said it was a blog that hit her today. I never found out exactly where it came from because she could not tell me. BUT,
Great Google Juice on your Blog. To be able to hit someone in the AM in Calif. not blog worthy. (Did I just say that)?
Usually an entirely different connotation when I go viral, Ken. ;)
Thanks for letting me know about your colleague. Pretty cool beans. The internet is amazing in that regard. I must say, however, if I am being cited by anyone on any matter whatsoever, this planet and her inhabitants are doomed.
Paul, this is by far the smartest & most logical post I have read in a very long time.
Good Post, and based on the comments just proves how local RE really is!! Wonder when the National News Outlests will ever figure that out?
It has not been a buyers market here for a long time. Wish that the national media would quit saying that it is. Also not sure where everyone is seeing all this excess inventory as ours has been nearly cut in half over the last three years.
I agree that its definately not a "buyers market" and instead should be labeled a banker's market since most of the inventory is either bank owned, short sales, etc. And if the buyer is buying from another individual then good luck jumping through all the hoops put up by the bank to qualify for the mortgage.
Sonya R Nevins (Star Realty, LLC) Waterbury, CT
Honestly, this is one of the first highlighted AR articles that I disagree with. I hear what you're saying but I don't believe the points are solid. IMO, it's still a buyer's market and will continue to be so until inventory is reduced and prices return to trendline locations.
Frankly, the only thing that surprises me with your comment, Tre, is that this is the only featured post with which you disagree. On a given day, I find myself opposed to 50% of the dashboard.
I get you points and they are well taken. There probably needs to be a new word to actually describe these market conditions. Probably the four letter word that comes to mind wouldn't be political acceptable.
Very true. It is quite a bit of work to find a great deal out there unless it is one that nobody knows is for sale.
A home is "worth" what someone is willing to pay for it - Buyers create "the market". However, a seller CONTROLS the market as they are always in the driver's seat as to whether they can or are willing to accept an offer on their home.
well said
This is a great article. I love the last 3 or 4 paragraphs! Trying to explain what type of a market this really is to buyers and sellers is challenging to say the least-reblogging.
Paul,
Economists would love your ability to grasp the true nature of Demand: willingness does NOT count it is only those with the ability to purchase who ultimately impact demand for a product.
Some of my buyers just couldn't grasp your point during the great land rush of March/April when they were continually told it was a buyers market by the national media. I kept telling a couple of them, as they continued to miss out on great bargain after bargain because they wanted to lowball the property. Multiple offers on these desirable homes at what the market price was offering them at and PRESTO-home sold!!! I lost one of these buyers because I could not convince him it was a SELLER's market on the type of home/price range he was looking for. He got frustrated because he would NOT pay what the market was demanding because he felt he should get an even better deal because it was a "buyers market"!
Here are the current figures for the first six months in one of our MLS markets:
Median Days on Market: 40
Supply of homes: 4.7 months
Does that sound like a Buyers market to you???
I enjoyed the sound economic principles in your post, Paul(it's hard for me not to notice as I taught ECON for almost 20 years)
Man, that is such a good point, you make in this article. That is definitely what I have been telling anyone whom I talk to in this market over here. Anytime a foreclosure hits the market, it gets bid up to over asking price. The homes on the market are owned by people who cannot sell without a short sale, or they are a short sale. The remaining homes are owned by people who want to capitalize on the market, and look for an opportunity to make money, and its not there so they will not sell.
I still see buyers refusing to pay and extra $5000 for a house, and continue looking. And, and that is not necessarily on a $250,000 home too!
Hi Bruce,
Thanks for the endorsement. I think I am making up for all of those econ courses I daydreamed through by paying attention all these years later. Matter of fact, I am convinced that the entire mess is my resulting karma. My bad. ;)
Nancy Pelosi and Harry Reid would be happy that you are accepting the blame - it might just secure their positions after November. ^_~ (it appears many voters are not all that enchanted with incumbents in the entire Congress)
Absolutely fantastic post. Thanks for that viewpoint, which, unfortunately, is so close to the truth that it's disturbing. Definitely reblogging for our area to see this. Thanks again.
I could not agree with you more!!
This is a great thread!!! There are many differing opinions because this is not a black/white subject. First, all real estate being local means location plays an important role in whether a property will sell and what it will bring in the marketplace. Then there is the supply/demand factor which can be difficult to evaluate because not every home listed is really available. Can you believe a 2nd lienholder killing a deal by refusing to accept a $25K payoff, in favor of foreclosure in which they received ABSOLUTELY NOTHING!!!
The fact that so many buyers are not able to qualify reduces demand, pushing the market in favor of the remaining buyers who CAN afford to buy. Lender's unfathomable logic makes buying short sales so much more difficult, adding additional fuel to the market in favor of buyers who have the tenacity to stick it out on difficult distressed properties.
On the other hand, sellers are NOT handing out bushels of money to buyers in order to get their homes sold, whether short sales or not. Buyer's misconception of exactly what 'Buyers Market' means has caused some to believe that they're going to get rich by offering 30-40% of list price and this simply isn't happening. This thinking has caused a lot of frustration for realtors who must try to educate potential buyers and help them to understand that they may be rejecting a golden opportunity in the attempt to make a killing. If you're getting the house for 15-20% below market value and you're getting financing at under 5%, why are you walking away from the deal over $5,000?
The other nuance that many folks don't get is that there may be a Buyers Market in one price point and not in another. In our area we've seen demand begin to exceed supply where price is $200K & under, esp. when it's substantially under. Investors, motivated by value perception have begun to bid up these properties, making it difficult for owner occupants to compete. This gives sellers more leverage and drives prices up.
There's nothing simple about this market and impossible to tell what the future will bring, but it's certainly not boring!!! In the words of the great Bette Davis, 'Fasten your seat belts boys. It's going to be a bumpy ride!'
My $.02
I don't think I want to meet you in a dark alley, Bridget. ;)
Short sales are tough now. I have been having alot of problems with BPO's like you mentioned. I am beginning to think that the bank is taking the BPO value that is given by the agent and adding another 25% more than the value just because. I honestly can't believe that there are so many incompetent BPO agents.
Great Idea!
Makes a lot of sense.
Great blog!
So ... did the market change yet? First pitch, Mets versus D-Backs in ten minutes.
You didn't hear, Lenza? It's now a farmer's market. I already ate my weight in cabbage.
Paul,
I really like your summary: "And lastly … smile."
Mike in Tucson
It's like Rush Limbaugh was saying the other day: a buyers market without buyers. People WANT to buy but lack the buying power ($$$) . Of course they offer low interest rates and low prices, but who isn't doing that when buyers are scarce. Duh!!! On top of everything it is harder to get financed now then it was a not too long ago.
Paul, a beautiful post... It waxes poetic! I love the basic premise: "It's a buyer's market when few have the wherewithal to actually buy."
Well, isn't that the definition of a buyer's market? More sellers than buyers, right. Yeah, I know absorbtion rate but the bottom line is sellers have to compete or risk not selling because buyers have many choices.
Strange that this post has new legs.
Bob, the total ratio of buyers to sellers is an oversimplification of the market. While there is more active inventory and fewer buyers in the overall market, the various strata are not homogeneous. The properties that buyers are after, by and large, are inundated with suitors. Low price points, bank properties, etc. There is a legion of walking dead sellers out there who have no business being on the market with their homes (short sales that won't gain approval, hopelessly overpriced albatrosses, etc). Whether we split academic hairs as to the exact definition of a "buyer's market," the purpose of this post is to advise potential buyers that such a label is misleading. The well-qualified buyer who is searching the higher price ranges has an advantage here in Scottsdale, but the lower price point buyers are elbow to elbow with competition. Factor in more stringent qualifying criteria for those competing would-be buyers, and the purported low-hanging fruit of cheap housing lies on the far side of a mine field patrolled by sharks with fricking laser beams attached to their heads.
Laser beams, eh? You certainly must have an interesting market!
If your intent is to say that just because we're in a 'Buyers Market,' it does not follow that it's going to be paradise for any and all would-be buyers, I definitely agree with that. There's nothing simple about buying or selling a home in any market. As realtors it's our job to explain the nuances to our clients and help them to understand where they stand in the marketplace. Informed buyers & sellers make better choices.
With all of that said, though it's begun to stabilize, it's still a buyers market here in Colorado.
Cheers!