| Smart Buyers Do Just that in a Buyer’s Market |
| Written by Jonathan Smoke | |
| 04.07.2008 | |
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Discuss this article on the forums. (0 posts) Patrick Duffy at Metro Intelligence and the man behind The Housing Chronicles Blog has become my favorite blogger. On Friday he paid me the high compliment of linking to my post on the Best and Worst Places for Housing Prospects. Yesterday he managed to weave a mention of me into a brilliant piece on Boyce Thompson and whether this is indeed a good time to buy a new home.  Even without mentioning our focus on consumer based demand estimates, I was intrigued by Boyce Thompson’s courage to address the elephant in the middle of the room. Is this really a good time to buy?While builders do need to convince buyers and staff members to believe now is a good time to buy, Thompson suggests that builders stay realistic about what they need to do to survive, which of course means a recognition that conditions are not good and do not show any signs of getting better or at least dramatically better any time soon. Like Duffy, I especially loved Thompson’s recommendation that builders need to understand and effectively reach out to buyers: "At the same time, builders need to reach out to more potential new home buyers, even people who may have cancelled a previous new home contract. A far more sophisticated approach to demographics is required; we need to reach submarkets that aren't served by the existing home market. Rest assured, there are buyers out there who still need to move, who still need to buy a new home. We need to find them and convince them that our communities are ideal places to live."
For example, we recently helped a vacation home developer more effectively analyze their buyers and prospects. Within three days of an inquiry, the developer had a clear profile of who their buyers have been. Using that information and research into detailed consumer segments and their likelihood to purchase a second home, we helped them cull a prospect list of nearly 9,000 contacts to a list of 3,000 upon which they could concentrate their marketing budget. Back to the question of is it really a good time to buy, I don’t totally agree with Thompson’s conclusion that it isn’t. His argument is that prices look like they will continue to fall and foreclosures will only make supply issues worse. I hate to be a broken record, but here we go again: Home prices are not likely to fall everywhere. Out of all of the 1400+ counties in the 939 metropolitan and micropolitan markets we cover, more than half have less than a 10% chance of seeing home price declines over the next three years. Those same markets are also less likely to have high foreclosures making any real impact on supply. But clearly in some markets, like much of California, Florida, Nevada, Arizona and Michigan, home price risk and continuing supply pressures are very real issues. Prices indeed are likely to fall further in those markets, but picking the exact bottom is a fool’s game. Like stock investing, it is impossible to time the market and buy at the exact bottom, for once we all recognize the bottom has been reached it will be well past that point. An additional factor that no one is talking about now is that interest rates will not be low forever. In fact, mortgage rates will eventually become the enemy of affordability again. At some point home prices will begin to appreciate. When they do on a national level, the Fed will return to being more concerned about inflation, and at that point interest rates will almost certainly rise as monetary policy will be directed towards tightening the money supply. When consumers realize that by delaying a desired home purchase they are gambling on waiting for the perfect home price bottom as well as the high probability that mortgage rates will be higher in the future, they will begin buying again, and the current buyer’s market will shift. The phrase “a buyer’s market” means that buyers have the leverage, but that doesn’t mean they don’t buy. The smart ones buy. The less intelligent ones wait until it’s a seller’s market. 
We're always looking for feedback from our readers.
No. 1 : investor and home owner It is far better to miss the bottom and buy when prices are rising, then to buy when values are dropping and unlikely to rise again for years. But of course, local conditions apply: so the criteria that makes your local area different than 19 out of 20 metro regions... 1. Prices are not dropping. Unless the place you buy is WAY below the market, prices dropping is a clear sign NOT to buy yet. 2. Inventory is dropping and is only a few months worth. If there is a lot of competition to sell, prices will drop, particularly if the inventory is foreclosures. 3. Your area is not in recession. Jobs lost leads to foreclosures... 4. Buying really is only slightly more expensive than renting, and you can't rent the place you would buy. There are many risks to homeownership while the only risk to renting is increasing rent; and buying a home has large transaction costs. Unless home values are rising - which they may not for years - then there is no investment value in buying. I'm sure there are many places that meet all these criteria... just not my area, I'm in California. |
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