If you have
been shopping for a home in 2014, chances are you’ve got it all wrong. Shopping is such a 2011 concept. Today, it’s more like cage fighting.
With
inventory hovering around 8,000 homes (down from 18,000 three years ago), double
digit appreciation in many areas of town, multiple offers on anything worth
having and an overall absorption rate of less than 1.50 months, buying a home
has lost its joyful luster. It reminds
me of the scenes you see on the news, with desperate shoppers fighting over the
last can of soup in the grocery store hours before a hurricane hits town.
One result of
this inventory-starved market is that logic is out, and emotion is in. If you’re a logical person (i.e., accountant,
engineer, or anyone who has ever balanced their own checkbook), there is no
guarantee of success here.
Because in
an emotional market, it’s not who has researched it the most… or who has
analyzed it the most… or who has compared automated valuations on 12 different
websites. It is whoever WANTS it the
most, and that’s a different deal altogether.
Here in Denver, we have
transitioned from a dead market (2009), to a fear-based market (2010), to a
logical market (2011), to a healthy market (2012), to a hot market (2013), to
an emotional market (2014). Again, it’s
tough to win with logic when emotion sets the bar.
There is
only one thing that keeps me from getting panicky about the price appreciation
and future prospects for our market, and that is the fact that virtually all
buyers still have real down payments and excellent credit. But the fact remains that most buyers today are pricing in a premium for projected future appreciation when making a present-day offer.
The good news is that history shows that buyers with verifiable employment, real down payments and excellent credit are in it for the long haul. Buyers with no money and no credit used to be
called “subprime”. Today, they are
called “renters”. And as long as the banks can resist their jittery urges to throw open the vaults to the masses as they did a decade ago, I think we're still okay going forward.
All to say,
navigating this market has become infinitely more difficult for buyers, and the
turbulence is affecting sellers as well.
The number of deals crashing and burning after going under contract is
definitely on the rise, because emotional buyers also tend to be emotional at
their inspections, and emotional about their appraisals, and emotional about
the hard line many sellers are taking on repair requests and any other form of
concession when there are a pile of other offers sitting on the table.
And with the
number of traditional “move up” sellers way down (due to higher rates and
prices, and the fact that everyone who refi’d in 2012 and 2013 is eternally
addicted to their new low payments), a much higher percentage of listings are
coming from investors cashing out by dumping bargains they picked up during the
downturn and estate sales, which often have years of deferred maintenance.
Success in
this market begins with a decision… am I in, or am I out?
If you are
in, then suck it up and realize that this is going to be work. It may take time. It will involve frustration. The deals are not what they were a year ago, and look nothing like what they were five years ago. But if you can keep your eye on the prize and
be decisive when the moment arrives, you’ll survive, and a year from now, chances are you’ll
be glad you took action when you did.
If you aren’t
sure if you want to be in, then you are out.
If you don’t
know if you are in or out, you are out.
And if you
are out, you will probably be out for a long, long time. Because homes don't appear to be getting any cheaper and
rates aren’t going any lower.
