Friday, May 11, 2018

Buyer's need to be quick on the draw, and pull the trigger.

Well, a little 'old west' parlance in that headline, really drives home the situation that buyers find themselves in. This is particularly in this tight inventory condition our local market is facing. I feel like the pool of buyers is shrinking, mostly due to rising rates and recent rising prices that have 'priced out' many buyers.

Our inventory levels however have remained tight enough that even the shrinking pool of buyers is enough to tip the scales towards favoring the purchase side of the equation. This is particularly noticeable in the entry level price ranges under the median.

Buyer trying to get into a property listed at less than $325,000 in Clark County, WA are facing an uphill battle with so few listings to choose from. Some buyers are taking too much time deliberating on a potential house, that some other buyer writes an offer and gets accepted while they were chewing on a decision.

Here is the situation that buyers are facing. Prices are still rising. The rate of appreciation has slowed quite a bit. But they are still rising. We may end up with 2018 at 6% appreciation. If that hold a $300,000 house will rise in price roughly $1,500 per month! Meanwhile rates have been ticking up all year long averaging about an 1/8 point per month. That means the $300,000 buyer is losing $4,800 in purchasing power every month! So buyers are getting hit on both sides! Sitting on the fence is literally killing buyers, and many have hopped in and are keeping this tight inventory turning.

Some worry about a market correction. This is always a risk that any buyer takes when prices have been on a steady rise. Economic conditions in general are looking favorable. I haven't read too many analytical reports suggesting a serious bubble exists. Most of the professionals seem to feel like a modest slowdown is on tap over the next few years. I believe that is a healthy condition.

I wrote in my 2010 book, 'Don't Panic' that buyers often put to much emphasis on the "investment" value of the home they are going to live in. The reality is that when we buy a house to live in, we are buying the utility of the house as shelter. Improved real estate is not a good investment unless you maximize its income. So if a buyer wants to live in a property and is worried about its "investment" value, they ought to be renting out every inch of unused space in that house, yet so few do.

If a house suits a buyer's needs, has the proper function, utility, style, layout, condition, quality, neighborhood, etc. They should be less concerned about its pure investment value and more concerned about whether that house will serve them well for its intended use, shelter and a feeling of 'home'.  Now that said, any buyer thinking about a short term proposition has to add a little emphasis on the potential for appreciation as selling the house can be difficult if the buyer has a tight equity position. In any case, unless one is buying the property specifically as an investment, a rental, flipper, etc. they should focus on the utility value of the home as that is what will serve them best in the long run.

One thing is certain, buyers need to pull the trigger, or the market may just leave them behind as permanent renters.

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