Understand How The Housing Inventory Affects You
Inventory is very important to buyers; it offers choices and it gives power to buyers. When inventory is high it is usually a buyer’s market and sellers are competing to attract the attention and the money of buyers. Low inventory hurts a buyer in a number of ways.
Realtors® measure inventory in terms of ‘months’. At the current rate of sales, if nothing new came on the market, how many months would it take to sell off the properties currently for sale? This is also called the ‘absorption’ rate. At the high water mark in the recent housing depression we were officially at a 20 month supply, even more in some areas including Yamhill County. This was an unbelievable buyer’s market where demands were aggressive and negotiations were brutal on sellers. When the inventory falls below a 6 month supply, as it is now, it is considered a balanced market between buyers and sellers. At some point low inventory ushers in a seller’s market and the opportunities ripe for buyers dissolve into history.
Things can change quickly and they have in the past year! Current low inventory obviously means fewer choices for buyers. It also means more aggressive competition among buyers for the properties available in the marketplace. This condition results in quick and multiple offers on the same property. Caution is advised; this can suddenly morph into a seller’s market where sellers price properties higher and negotiate less.
What You Do Not Know Will Hurt You and Steal Your Opportunities:
In the past 6 years, almost universally, housing prices have dropped at least 30%. In many places (e.g. California, Nevada, Florida, etc.), and for many price ranges (e.g. high end), or types of properties (e.g. buildable land), the prices have dropped 50% and more. It is time to realize that the prices are already bargain values and buy instead of haggle!
Buyers beware! We have hard data which now documents that the market has turned and we have an improving/escalating market. 2012 saw a dramatic change in Buyer attitudes. Inventory which was high; it is now very low. The rate of sales (absorption) is now brisk and multiple offers have become common in some areas. Prices have stabilized and even increased in some markets. Interest rates are at historic lows (e.g. 3.1% on 30 year fixed loan in the fall of 2012). This is not speculative forecasting, it is reality.
Buyers who do not know this still act as if it is a buyer’s market and they can be aggressive and demanding. These will be the losers of our time because they could not read the signs of the times. Buyers are losing power quickly.
Why It Is Time To Buy Now.
It is time to buy real estate; many other wise people have already scooped up the best values in the marketplace. Failure to buy now means you may miss historic opportunities.
– Everyone wants to buy low and sell high. In reality, the masses buy when prices are going up and they sell when prices are dropping. Of course this is backwards. However, ‘market timing’ is a challenge. No one can forecast the future with certainty but I think it is safe to say that now is a good time to believe we are at the very bottom and starting to move up Here is why:
– The price is very low! Real estate gurus always advise investment buyers to buy at 30% under market value (a no brainer). This is rarely realistic, these kinds of properties are usually impossible to find and to secure these you also must have a pile of cash. Today prices across the board are at least 30% under the market value of 5 years ago!
– Interest Rates are rising! Read the Buyer Advisory #1 which explains why interest rates must rise with an improving market and a strengthening economy. Nothing affects your power to buy as much as a low interest rate. For 40 years we have been paying interest rates routinely in the 8-12% range; at the highest in the early 1980s the mortgage rates were almost 21%. Low prices are good, low interest rates are even better.
– Sellers are motivated now! Sellers have been locked up in their property for too long and have pent up demand to sell and move on. That motivation and intense pressure will soon be alleviated and sellers will exact revenge on buyers when they take hold the market power. I remember the irrational demands of sellers in the height of the market in 2006-2007; it was not pretty! Buy now while you have generous opportunities.
Finally, Beware Of Unpredictable Market Corrections
We all understand that prices appreciate, sometimes slowly and sometimes quickly. Most industry watchers do not think our housing markets will appreciate very quickly for the next several years. Most of us in the industry prefer slow steady improvement to a roller coaster type of ride. 5% appreciation per year sounds good enough.
So is there any reason to hurry? Yes, because certain price ranges and types of properties can go through a quick correction. If certain sectors were unnaturally depressed, then we might see buyers come back in the market at higher prices because the intrinsic value is there and the future risk is low.
Vineyard properties seem to be such an example. Plantable ground has not sold well for over 5 years, but the future of our wine industry keeps getting brighter. In 2012, we had a number of sales at amazing prices, as if we never had the depreciation we all assumed was there. This is a correction which can be sudden and shocking. With a correction, the opportunity is lost and the regret is severe.
What we are here for…
Too often Realtors® are viewed as “just sales people getting customers to purchase our wares”. For some reason, buyers think their relatives, the New York Times, or some distant infomercial guru, knows more about local conditions in real estate than we do. The reality is that we do not have customers; we have clients for whom we work. We are not selling a product line for a company; we are working for clients and advising them how to achieve their goals with less risk and better reward. What our clients buy is their decision, not something we are pushing. We get paid when they achieve their goal regardless of the choice. We advise clients based on our industry knowledge, our depth of experience, and hard data from the local markets. One of our greatest frustrations is watching clients make bad decisions because someone out there thinks they know more than we do. We are not perfect but we are expert in what we do.
Could something worse befall us economically? That answer is always, “yes”. However, without speculating on what we do not know, the current data, and our experience, tells us that this is an historic opportunity for buyers that soon will be gone perhaps for a generation or more. If you are going to buy real estate, do it now; we do not believe you will regret it. Of course, get good advice on the particular property and guidance in avoiding serious mistakes.
Randy McCreith, Principal Broker
Bella Casa Real Estate Group
Cell: 503-310-9147 Fax: 866-281-6653