The 2 Types of Buyers in Today’s Market

A large part of my time is spent meeting with and advising sellers. It is advice that varies from area to area and especially from the very busy lower price points to the very slow higher price ranges. It truly is 2 completely different markets. Understanding the differences and tracking the numbers is crucial. An agent really can’t accurately advise a seller without fully understanding the dynamics of what is selling and what is not.   What every seller wants to know is “how much and how long?” and if how much isn’t “enough” then how long before it goes back up?. Every seller in every price point asks these questions and the best agents always know the answers, in any type of market.  To be able to answer them in a confusing market like we are in today requires an understanding of who the buyers really are and what their motivation is. In other words to have a “sale” you need a home for sale AND a buyer. In today’s market there are clearly two types.

     The first buyer is the one that does not HAVE to buy now. This buyer may be a first timer that is renting or living with family, someone who sold and is renting “waiting for a good deal”, or someone who owns and intends to buy and keep their existing property. In all cases though there is NO DEFINITE TIME FRAME to purchase. They may be motivated by value (which is why the foreclosures sell so well and with multiple offers), or the best location and upgrades. In either case they will wait for it, however long it takes. For many of my sellers I suggest that this buyer is likely not our buyer unless they offer superior condition/location and a price that is attractive. It must be both to attract this buyer.

   The next buyer is the buyer that is highly motivated to buy TODAY. They just sold their home and do not want to do a double move. They must be in before the next school year. The Company just transferred them and they want to settle in to their new town. Whatever the situation, this buyer is as motivated by time as money and for many of my sellers, THIS is the buyer they are looking for. The challenge is that in a declining market there are far fewer of this type of buyer than in a stable or appreciating market. To find them, I attempt  to literally track every buyer that I can in the marketplace. I have ads and signs that generate dozens of buyer calls each week. I talk to them. Internet inquiries -I respond. We call agents that show our listings and ask what their buyers needs are. I meet weekly with the top agents in town at a Network meeting where we attempt to put buyers and sellers that we are working with together. In all cases this gives tremendous insight into who is buying and who isn’t.

What this means to today’s seller that is not willing to price under the competiition, is that it takes a lot of time, and the higher in price the longer it takes. For example, right now in Santa Clarita there are 132 homes for sale over $800,000. Unlike the lower price ranges, there are only 9 short sales and 7 foreclosure properties in this price range. Meaning over 85% of the homes for sale are just regular sellers waiting for the right buyer to come along-not the distressed properties that so many buyers request. The tough part is that only 16 homes over $800,000 are under contract, meaning over 85% also are not selling. The average time on the market for this group is over 115 days. This group in many cases is waiting for the #2 type of buyer, and there arent that many. What we have is buyers waiting for lower prices or better homes and so far they aren’t coming. Then we have sellers not willing to lower to effect a sale and you have a market that can easily confuse those that don’t understand why homes still can sell at top dollar-but only when there is little or no competition and only when the seller is patient enough. Sometimes that is asking a lot. Contrast that with homes available under $400,000 where there is a ton of activity and a ton of short sales and foreclosures. There are 458 homes for sale in this price range and 311 of them are short sales-homes that the “MUST BUY TODAY” buyer has to avoid. That is why when a new foreclosure or “regular sale listing comes on the market in this price point it sells IMMEDIATELY. The average time on the market here is only 37 days.

 So, if you are a seller over $800,000 be prepared to give yourself-and your agent-the months necessary to sell. Waiting for the #2 buyer can take a long time…..

What Happened to all the Foreclosures??

I suggested in my “Predictions for 2009″ that prices would be directly affected by new foreclosures coming to market. For the past 4 years, areas that had lots of foreclosures dropped as much as 50%, whereas areas that had lower rates of default  lost less than 10%. It was my expectation that, based on continued high default rates, prices would be soft and in many areas continue to decline because of foreclosure competition driving prices down. Surprisingly, the amount of foreclosures coming to market has been a fraction of last year at this time. In fact, inventory in Santa Clarita is at about 1150 homes vs. 2065 a year ago. So what is happening??

1. Starting last year many loan servicers started complying with a government led “moratorium”. I have tracked dozens of homes that went to foreclosure sale in December, January, Februaury and March that have never come on the market. I could write a thesis on what I believe is happening here, but suffice it to say they aren’t for sale…yet. Loan modifications, by my estimate, will only work for about 25% of these (many are vacant or tenant occupied), so the biq question is WHEN? Today in Santa Clarita there are “only” 106 bank owned properties compared to well over 300 a year ago. Multiple offers are commonplace and agents that don’t really understand the Santa Clarita market are pricing foreclosures lower (in some cases much lower) than they need to.

2. Assuming a large amount of foreclosures hit the market this summer, the lower price ranges will still be relativly stable for good condition properties. In fact, if we removed the “short sales” from the market it would not be a buyers market under $450,000. Let me explain. Of the 1181 homes for sale today, 564 are short sales. These are listings that every agent, if they are being honest, shows only as a last resort. Take away these homes and we have 617 “salable today” properties. The last time the number was that low prices were going UP 25% a year, not down. Stand around the Remax office and listen to all the agents moan about the lack of homes to show their buyers and you would swear it’s 2004. The challenge, of course, is that the buyer’s mentality today is 180 degrees opposite of 2004–they are unwilling many times to offer asking price or over asking price for lower priced properies with multiple offers. Many just don’t understand or accept the supply/demand dynamic happening, but smart buyers are buying quality under $450,000 without reservation.

The exception to this discussion is homes over $800,000. This has been a low foreclosure part of the market, but prices are adjusting here rapidly–for the most part due to a lack of buyer confidence and lack of available financing. As always, the numbers tell the tale. Today in Santa Clarita, over $800,000, there are 137 homes for sale and only 25 in escrow. Over 1 million it’s even tougher–83 homes for sale and only 4 in escrow. Less than 20% of these are short sales or foreclosures, so it’s more lack of demand (and more than ample supply) driving prices down here. Top quality still sells, but it better be priced right.