It Is Not a Buyer's Market

By
Real Estate Agent with Realty Executives

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

 

Comments (137)

Lisa Wiseman
Intero Real Estate Services, San Jose, Silicon Valley - San Jose, CA

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.

Jul 14, 2010 05:03 PM
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

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)

Jul 15, 2010 03:28 AM
Eugene Lew
RE/MAX equity group - Happy Valley, OR

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!

Jul 15, 2010 04:43 AM
Paul Slaybaugh
Realty Executives - Scottsdale, AZ
Scottsdale, AZ Real Estate

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. ;)

Jul 15, 2010 05:09 AM
Bruce Walter
Keller Williams Realty Lafayette/West Lafayette, Indiana - West Lafayette, IN

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)

Jul 15, 2010 06:01 AM
Nicole Anderson
Lake Homes Realty - Pell City, AL
YOUR Community and Lake Expert

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.

Jul 15, 2010 08:58 AM
Wendy Rich-Soto, Realtor/Broker Associate
Keller Williams Realty, South Bay - San Pedro, CA
Getting you to your next with a zero failure rate!

I could not agree with you more!!

Jul 15, 2010 09:05 AM
Bob Krus
Keller Williams Foothills Realty - Evergreen, CO
What About Bob? For All Your Real Estate Needs!

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

 

 

 

 

Jul 15, 2010 10:41 AM
Bridget Afandi
Keller Williams Realty - Little Rock, AR
REALTOR, GRI, MPR

Okay, sure - 74% of buyers have significant credit isssues, but here buyer's STILL control the real estate market in a contractual sense because they dictate how the deal goes down and seller's here in Little Rock, AR are bending to the will of the buyer to get through a successful escrow. Because the average market time is about four months. Nuf said. Granted, it may not be a buyer's market everywhere, but it sure is here.

Jul 16, 2010 03:38 PM
Paul Slaybaugh
Realty Executives - Scottsdale, AZ
Scottsdale, AZ Real Estate

I don't think I want to meet you in a dark alley, Bridget.  ;)

Jul 16, 2010 03:42 PM
Tatyana Sturm
Exit Realty DTC - Aurora, CO
Denver Realtor, GRI, Denver/ Aurora CO Relocation

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. 

Jul 18, 2010 04:10 AM
Tom Waite
Thomas Waite Real Estate Broker - Cypress, CA
So Cal-Apartment Bldg Investments

Great Idea!

Makes a lot of sense.

Great blog! 

Jul 19, 2010 06:38 AM
Andrew J. Lenza
Coldwell Banker Residential Brokerage - Holmdel, NJ

So ... did the market change yet? First pitch, Mets versus D-Backs in ten minutes.

Jul 19, 2010 03:11 PM
Paul Slaybaugh
Realty Executives - Scottsdale, AZ
Scottsdale, AZ Real Estate

You didn't hear, Lenza?  It's now a farmer's market.  I already ate my weight in cabbage.

Jul 20, 2010 05:27 AM
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495

Paul,

I really like your summary:  "And lastly … smile."

Mike in Tucson

Jul 30, 2010 04:24 AM
Peter Wahli
Home Run Realty - Kingwood, TX

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.

Aug 16, 2010 01:51 PM
Don Wixom
RE/MAX Executives Nampa, ID - Nampa, ID
"Looking out for your next move..."tm

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."

Aug 21, 2010 12:02 PM
Bob Krus
Keller Williams Foothills Realty - Evergreen, CO
What About Bob? For All Your Real Estate Needs!

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.

Aug 21, 2010 12:45 PM
Paul Slaybaugh
Realty Executives - Scottsdale, AZ
Scottsdale, AZ Real Estate

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.

Aug 21, 2010 01:01 PM
Bob Krus
Keller Williams Foothills Realty - Evergreen, CO
What About Bob? For All Your Real Estate Needs!

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!

 

Aug 21, 2010 01:35 PM