The Tug of War: Buyers in a Buyer’s Market – Pt 2

This is part two of yesterday’s post, “The Tug of War:  Sellers in a Buyer’s Market“.  In yesterday’s post, I highlighted the fact that though sales are down, prices still continue to climb here in Wilmington NC.  I focused on the seller’s side of the tug of war, but everyone knows a tug of war match is silly without an opponent.  So introducing the opponent:  the buyer.

Sales are down.  That means less buyers are writing contracts.  The question we must ask is:  “Did the desire to move decrease?”  My answer:  Doubtfully.  So why are a good portion of buyers putting their checkbook back into their pockets?  Let’s look at some possible reasons for this.

1.  Buyers can’t sell their home.

I know, a big duh right?  Believe it or not, there is still a large portion of the population in the United States that still have to actually sell their home before they can buy another one.  So with the slowing of the market, many buyers are still sellers at the moment.  When the cash arrives in their bank accounts from the sale of their home, that money will be transferred right back into real estate. 

2.  Increased Mobility of some Buyers necessitates Liquidity.

The job market has become much more transient with the ever increasing globalization of business and industry.  This results in homeowners, who have jobs that require them to move every so often, having a difficult time seeing the value of buying now.  The issue facing this group of buyers is liquidity.  Real estate is not a very liquid asset.  You can’t just put money into real estate and then pull it back out like you can with a savings account.  With the turbulence of the current market, these buyer’s can’t make financial sense of investing in a home they may need to sell in a year or so.  To just cover the real estate commission, they would need to see an appreciation of 6+%. 

3.  Fear of Losing is detering some Buyers.

No one likes losing and there are many buyers who feel they would be playing musical chairs with their finances if they were to buy right now.  As the news continues broadcasting negative reports on the housing market, some buyers feel like another chair is being pulled from the mix.  If they step out now and buy, they fear they will be the last ones standing.  This is happening in many markets.  Homeowners unable to pay their mortgage payments are now stuck with a property they cannot sell because prices have decreased since they bought their home.  As a result, the foreclosure market is growing everyday.

4.  Misunderstanding Market Cycles have paralyzed many Buyers.

Every market is a great time to buy with the right strategy.  Check out part three of this series, “The Tug of War:  Investors don’t play Tug of War”, to learn more about this.  Many buyers don’t understand this because of a lack of education on how real estate works.  This is changing though.  Previously, the real estate profession was a gate keeper of the Multiple Listing Service.  Before the Internet, the general public did not have access to the MLS.  Now that the MLS is available to the public, the role of Realtors has changed.  Now the value of a Realtor is his or her knowledge and their ability to educate their clients.  So this last problem with sideline buyers could be solved by buyers hiring an excellent agent who can educate them on the market and how to find a win-win deal.

Mindset vs. Market 

I personally am not worried one bit about the market.  Mindset and the market are two different things.  Many agents are still pushing the idea that the market is great!  Though consumer confidence is important, mistaking a positive mindset about the market and misconstruing market conditions is a possible reason for a bit of the stale mate in the market right now. 

Sales down is not a great market.  Prices going up in a down market cannot reasonably be sustained over the long hall.  I love summer, but the world would be in serious trouble if summer showed up next year and stayed summer for the next 8 years.  So with markets, economic cycles are required just like the ecosystem requires seasons.  This economic cycle is healthy for the economy.  In the short term, it may be uncomfortable, but that doesn’t mean our mindset about our finances, and life for that matter, have to descend into a dark place.  If it helps, take a look at “The Pursuit of Happyness.”

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“Part 1:  “the Tug of War:  Sellers in a Buyer’s Market“

“Part 3:  “the Tug of War:  Investors don’t play Tug of War“

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