Why RIGHT NOW Is the Best Time For Buyers
Prices are down 20% locally to me. It is possible, even likely, that prices may come down further. But right now, buyers have more power to make the deal they want than they will again for the next ten years. Even the ugliest buyer is looking very attractive right now. When more people come off the sidelines and are willing to buy, buyers are going to have a lot less power.
For instance, right now seller carry-backs are practically routine. People with truly putrid credit are able to leverage this fact into 100 percent financing. Sellers don't want to do carry-backs, ever! They want their cash, not a continued interest in the property, and particularly not from someone with putrid credit who can't get banks to lend that much! But the facts of the market are giving buyers the leverage to get that. Later on, when more buyers come off the sidelines, sellers will tell such buyers to take a hike.
If it looks like I'm telling you that now is the time for buyers to get off the sidelines because nobody else is willing, you've got the first piece of the puzzle.
The second piece of the puzzle is that those sellers who don't have to sell are figuring out that now is a lousy time to sell. Total local market inventory is down by 2000 units since the beginning of December, and 8000 units since the end of summer. People rented them out and took them off the market. In my office, various agents have made at least a dozen offers where the sellers took them off the market and rented them out instead. It's great for those sellers who have that option, but what about those sellers who do not?
The answer is that those properties still on the market is the ones that have to sell. They can't rent it out for enough to cover the mortgage, even if they add hundreds of dollars cash to it every month, and how many people want to add hundreds of dollars cash every month to a mortgage that they couldn't afford in the first place? Many of them have negative amortization loans that they couldn't afford, while others have 2/28 Interest Only loans where they could barely afford the interest only short term payment, and now the interest only period is over, the rate adjusted upwards, and there's no way they can afford it, as most of those payments increase by forty percent or more. The end result of either is pretty much the same as when Wile E. Coyote looks down. Bye bye.
So what does this all mean? Let's leave aside the fact that the ratio of sellers to buyer spiked to 55:1, as this was Christmas week. But the week before, the ratio was 45:1, and I'm pretty sure that's where it's going to be back to in a couple of weeks. Since January 1st, 2006, 30,413 properties have sold while 46,274 have failed to sell and 17,026 are still on the market. This means that for all properties listed for sale on the local market, there is only about a forty percent chance that any given property sold at all (30413/30413+46274=0.3966).
Now obviously, it's not pure chance as to who sold and who didn't. Attractive properties correctly priced did fairly well, but even there, the point of having some nice feature like hardwood floors wasn't that you could therefore sell the property for $25,000 more than the one down the street with carpet over a slab - it was the fact that the property with hardwood floors sold, where the one with carpet over a concrete slab is still sitting on the market, if not expired.
Most important of all attributes in getting a property sold is the seller's attitude. In a market like this, the seller who has made up their mind that they are going to get every last penny out of the house is wasting their time. $25k for the hardwood floors, $15k for the marble in the bathroom, $15k for the whirlpool spa? Not going to happen. It's okay if they can last until the next seller's market, but we've already established that the ones on the market now can not. What's going to get that property sold is the seller who swallows their ego and realizes that the odds of a better offer are against them, and decides to accept the offer that's the same or even less than the last property that sold in the neighborhood, even if it wasn't quite so blinged out as theirs. They know that the buyers out there now are bottom feeders looking for the best possible bargain, and they can spend their own weekends putting in the hardwood floors, the marble in the bathroom, and save themselves a lot of money doing so. If your house has the whirlpool spa, that might draw the offer where the property without doesn't get one, but they're not going to offer $15,000 more for it. They're going to offer the same price, because they'd rather have the house with the bling than without, but they're not willing to pay significantly more for it. Gone is the market where even the most marginal improvements meant you could expect to get more for the property. It might come back again, but in the mean time, the home improvement companies pushing the consumer to improve their homes based upon investment return are referring to a market that no longer exists. Double paned windows? Nice, and nice that I'll save some money off the heating bill also. But it's not worth $20,000 to cut your heating bill from $250 to $160 per month. The opportunity cost of that money is over twice the return, and a competently advised buyer knows it.
The point of all of this is that if one seller won't do what is necessary to deal with you as a potential buyer, the next one over will. If they don't, they don't sell, simple as that. Furthermore, with as many properties as are on the market for as few buyers as there are, amenities are not bringing increased sales prices like they were a couple years ago. They're back to the situation as it was before that seller's market, where the nice feature was the one that drew the offer in the first place, but the buyers are not offering enough extra to recover whatever the cost of that feature was. This has some really depressing implications for those who bought blinged out developer property, but that's the way it is right now. For buyers, research and patience and the willingness to walk away are paying major dividends right now, as is the willingness to be in the market at all. There are a lot of desperate sellers out there right now, and if you wait until prices are increasing again, you will have missed the best time to buy.
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