Buyer's Markets

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One of the phenomena that I am encountering is fear of the market in buyers. They are concerned that prices are falling, and that they will lose some or all of their investment.



Well, the first thing to understand is that buyer's markets are not the time for "flippers". You are not going to buy the property and make a profit after the expenses of selling in six months. That's a seller's market, and we don't have that now. Two years ago, most prospective buyers were using the f-word. Now, those people who were buying to flip are caught flat-footed by a market that has turned, like deaf kids in a game of musical chairs. The signs were there, but they were just a little too greedy.



Nonetheless, a buyer's market is the best time to buy for everyone else, and here's why: Inventory. Turnover Rate. Market Saturation. Supply and Demand. Instead of being the kings of the world, sellers have now turned into the beggars. The ratio of sellers to buyers locally is approximately 36 to one and climbing, as 960 properties were listed but only 397 purchase agreements were reached last week. Imagine you're in an environment where there are 36 people of the opposite sex for every one of yours. I'm assuming you're interested in the opposite sex, but even if you're not, you should be able to understand the implications. That one woman with 36 men to choose from is going to be able to get just about anything and everything she wants. Even the woman who would be completely ignored is going to have multiple, attractive suitors. Alternatively, the one man with 36 women to choose from is going to end up pretty darned happy, even if he is short, fat, ugly, middle aged and balding.



Now the sellers in this market don't really have the option of choosing other sellers, as it doesn't help them. They have real estate, they want cash. Just like how that short fat ugly balding middle aged guy does pretty well for himself when there are 36 women for every guy, so does the buyer who has cash, or can get it via their power to get a loan.



Prices are likely to drop for a while, but you will never again have this ratio of sellers to buyers, and the market could turn at any time. If you wait for the market to turn around before you put in a bid, you will be much less sought after. Right now, the power of the market puts buyers in control of the transaction. If this seller isn't quite desperate enough to do what you want them to, the one down the street or around the corner is. Like the 36 men to every woman scenario, if this man isn't able or willing to meet the woman's full wish list, she can move on to someone who is.



Buyer's markets don't last long. The last one was less than a year, and only about two months that buyers had the power that they do now. If you buy for a little more than market bottom, so what? The only time value of the property is important is when you sell and when you refinance, and I've already told you this is not a flipper's market. But once other potential buyers get the idea that there are bargains to be had, they will come out of the woodwork, and the vast majority of your purchasing power will be gone when the ratio of sellers to buyers drops to four to one. And soon after that, they turn back into seller's markets. When that happens, watch the prices - and the profits - shoot back up.

Miss the window now, and you'll pay for it later.



Caveat Emptor.


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About this Entry

This page contains a single entry by Dan Melson published on September 28, 2007 7:00 AM.

Hot Bargain Property September 27th, 2007 was the previous entry in this blog.

Title Insurance, or Fifty Ways (not) to Lose Your Money is the next entry in this blog.

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