In a hot
market where homes are selling for all-time high prices and buyers are being
forced to make quick, emotional decisions in order to compete, you would think
the issue of “buyer’s remorse” might be a real issue.
But it’s
not.
In fact, if
the topic is “remorse”, I think you may find more sellers wrestling with this
issue than buyers.
Fact is, anyone
who has purchased a home over the past few years has seen sizable equity gains
with the added benefit of incredibly low, fixed-rate payments thanks to our continuing
low interest rate environment.
While many
buyers have felt anxiety about our market during their negotiations, I
honestly cannot think of one client in recent memory who was anything but happy
(and already firmly in the black) 60- 90 days after closing on their new
home.
Earlier this
week, however, I received an interesting email from a client who sold a home
with me about 16 months ago. It was a
vintage farmhouse on an irregular, oversized rectangular lot in a mixed use
area of Arvada, full of quirks and backing to an apartment building. It had just two bedrooms and measured barely
1,000 square feet, with a mud room slapped on the back and a single tiny
bathroom that had made every morning feel like rush hour on I-25 for my seller
and her teenage daughter. It was
garageless, with only a broken down shed and a pasture of unkempt native
grasses in the backyard which provided the infrastructure for someone’s small livestock
operation many years ago.
We listed
the home for $204,000, and over 21 days we had about a dozen showings.
“Too quirky.”
“Don’t like the proximity to the apartments.”
“Needs another bath.”
“No garage.”
Finally, we
received an offer. Although it was only
about three weeks, it felt a lot longer, in part because the feedback made it
sound like this was the strangest house ever.
It really wasn’t, but in more cautious times, buyers weren’t afraid to
nitpick.
We sold it,
but only after some extended negotiation and a few additional concessions. My client was relieved
that it was finally sold, and I was happy to help her get on to the next
chapter of her life.
Fast forward
16 months and the quirky farmhouse has been listed for sale in a zero inventory
environment. No improvements, other than
taking down the shed in back and cutting down the tall native grasses behind
the home. The only real difference? A supercharged market the likes of which we
have never seen before.
Listed for
$250,000, the home received multiple offers in the first 48 hours and
eventually sold… for $260,000.
“What just happened here?”, asked my
seller in her email.
What just
happened here is that between January of 2013 and May of 2014, an armada of
buyers showed up in Denver. Thousands of
them were first generation foreclosure households (estimates are that somewhere
between 30 and 40 first generation foreclosure households are hitting their
eligibility point for getting back into the metro area market every day), thousands
others were renters tired of rising rents and shrinking square footage, while
thousands more had just settled in to town from California, Texas, Illinois and
other large feeder states that are pumping up Colorado’s population like never
before.
This massive
demand surge has launched the greatest housing rush in memory, and it’s not
going to settle down until more inventory shows up or buyers are altogether
priced out of the market.
Will it
eventually slow down? Of course – it has
to.
But has it
happened yet?
Nope. Buyers need to know that as long as inventory
remains low and buyers outnumber sellers, prices will continue to go up. But more and more, you’ve got sellers
thinking about holding out a while longer, wanting to ride things all the way
to the top. Not wanting to feel seller’s
remorse for selling too soon.
That
reluctance to sell creates a self-fulfilling prophecy, where sellers don’t sell
because prices are rising and prices rise because sellers aren’t selling.
So when does
the top arrive? In my mind, you’ll see
it first in the inventory, because when buyers finally grow weary and the
market top arrives, sellers will sense it and begin throwing their homes on the
market en masse. Buyers will become skeptical and their skepticism
will be met with even more homes for sale.
The market will eventually stall out, normalized conditions will return, and logic will once again have a
place at the table.
Until then,
you need to pay attention to the inventory.
If you’re watching the numbers, you will see it beginning with a subtle
shift, then a larger trend, and then, finally, after it is firmly in motion
and/or already happened, the Denver Post will report on it.
But right
now, the story remains nothing for sale and a seemingly limitless pool of motivated,
qualified buyers. That tells me we’re
not done yet, and that multiple offer mayhem will be the norm for at least a
while longer.
