Last week I talked about the impending interest rate hike that might take place as early as June. This week I wanted to talk a bit about what the aftermath of that will look like in our market which will lead to what I call buyer desperation. Many of you may even think you’ve seen desperate buyers, but I promise you, you have not.
Buyer desperation is when buyers write offer after offer and fail to win. This happens sometimes when buyers are not presenting strong offers or if their terms are unreasonable. A buyer will have to experience this a few times before they are truly motivated to buy. Other times it is completely out of their hands such as having very little money to put down, the type of loan that they have, or competing with cash offers. In the end, you’ll wind up with buyer desperation.
When a buyer becomes desperate for a house, they throw caution to the wind. A desperate buyer will want to see every property, and the “must have’s” they outlined become loose suggestions. These buyers will wish to write on every single home they see regardless of it’s what they really want. Only after they’ve paid for an inspection will they realize it’s the wrong home and back out of the contract only to repeat the process.
Buyer desperation will only get worse as we progress through the summer. Everyone is talking about the market will correct itself this year and frankly they are all full of it. There will not be enough homes that come on the market to balance out the lack of inventory. Right now, there are about five buyers for every home under 500,000 in my market. This number will increase by at least half come April 31st only because there are more buyers are entering the market.
If interest rates take a hike, you’ll easily see 15 to 30 buyers for every home under 350,000 from the buyers that got priced out of the market overnight. The fear of interest rates going up will be enough to motivate buyers to get off the fence now and buy before the interest rates go up. If rates do go up, it will solidify what we’ve been talking about for the past year and we’ll see a massive influx of buyers in the market ready to buy now instead of getting hit with another rate increase.
Ultimately there’s no way to avoid buyer desperation and the craziness that will follow. Well there is, but that would require a balanced market which would mean an surge of homes for sale. This surge would need to be enough to feed the buyer frenzy and frankly it’s a pipedream to think this will occur in 2015 for Denver.
If you’re working with buyers, keep them cool, calm, and collective. Coach them on patience and not to get desperate for a home. If you’re working with sellers good luck on what the summer of 2015 will look like for you!
Marc Bayes is a Broker Associate with the Colorado Dream House Team, Keller Williams Realty DTC. Follow us on Twitter, Like us on Facebook, Watch us on YouTube, Questions? Contact Marc at 303-619-3052
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