I attended a presentation today about the state of the market and how this is a great time to buy.  True, it was a presentation to REALTORS®, so a bit of preaching to the choir was involved, but it was filled with facts about the broader economy and trends, and lots of data about the DC area in particular.  I find data to be very powerful in speaking to first time buyers, in particular.  

The speaker briefly touched on trade-up buyers who, if they think logically, should drop their prices 10%, then go in 10% under on the next purchase.  An example:  let’s say they’re currently selling a 1BR $300K condo and thinking of buying a $600K house; in this scenario, if they were to drop 10%, they’d be sacrificing $30K.  But if the house they’re trying to buy drops 10%, they’re “gaining” $60K, so they’re still coming out $30K “ahead.”  After all, they're going to have to live somewhere, right?  Now of course there’s the argument that house seller won’t take $60K less, but is that really likely?  If a buyer shows up with a written offer, not contingent on another sale, a quick settlement (after all, the condo is now under contract), and financing in place, it’s going to be VERY difficult for that seller to turn it down.  

It reminded me of the saying “A Rising Tide Lifts All Ships", but apply that in reverse to today’s housing market.  Yes, a seller is getting less for their current home, but is in most cases more than making up for that on the back end.  In this way, not all percentage drops are created equal.  It's too late to "buy low, sell high"...but maybe it's okay to "sell low, buy lower"?

Sellers who are trading up are reluctant to start their search until their current home is under contract, but maybe that’s a flawed approach—maybe they need to find that house they love, quickly explore how much they can get off the price (to make sure the seller isn't too far upside-down and isn't in a position to take the $60K hit, say), and then move quickly on their own with a dramatic price drop.  (Though I still wouldn't put a non-contingent offer in until the condo contract came in...10% off is useless if the property is already 10% overpriced.)  

It got me thinking about my previous post “Do Sellers Get It?  If They Do, They Probably Get It in 30 Days!”  In the painful “You need to lower your price” conversation, sellers hesitate because they see their equity evaporating, and this "sinking tide" analogy may be a useful argument for making a very quick and dramatic price drop; Sacrifice $30 today to get $60 next week. 

Alas, there will always be those sellers who want the best of both worlds--e.g., holding their current price AND getting 10% off the next one--the "buy low, sell high, then buy low again" crowd...but it just doesn't work that way with tides.