Tuesday, January 22, 2013

Why It's Tough to Be a Buyer Right Now

Flashback to 2009 or 2010 when the market was flooded with gorgeous properties at attractive prices.  All you needed to do was qualify for a loan and you could take your pick of the cream of the crop.  You had nothing but time.  If you were investing in real estate at the time, you were probably a happy camper.  Short sales, foreclosures and other distressed properties ruled the land, and you had abundant inventory, time and money.

Fast forward to January 2013.  Buyers who would kill to have similar purchasing conditions are scratching their heads asking, "Did I miss the boat?  I thought this was a buyer's market, my Realtor told me it was 'safe' to buy again..." 

Several of the buyers I've been working with have had a tough go over the past few months, here's why:

1.  Low Inventories
The single largest issue facing buyers right now is a lack of inventory.  In December of 2007, there were 2840 active listings in Loveland/Berthoud and Fort Collins.  In December of 2012, there were only 1317 active listings - a total reduction of 53%.  The absence of available homes to purchase starts the ripple effect for all buyers.  Even disregarding rising prices (#3) or high levels of competition between buyers (see #5 - Multiple Offer Situations), some buyers will not find a home simply because what's out there won't fit their needs. So they wait, and wait, and wait.

2.  Financing Restrictions
In the recent hey-day of real estate (the Mid 2000's) money was easy to come by.  Interest only loans or 0% down loans were all the rage.  Real Estate was appreciating and all was well in the world.  Nowadays 0% down loans (outside of USDA and VA) are impossible to come by, and you're more likely to get struck by lightning than getting approved for an interest only loan.  Easy money isn't easy anymore.  Money is tougher to come by and lending restrictions are much tighter.  Expect to deliver more paperwork to your lender, justify your finances, income and credit, and be more forthcoming than you thought you'd ever have to be.

3.  Rising Prices
A funny thing happens when low inventories are present, prices have to rise.  Its a basic law of supply and demand.  Because there is more demand than supply, prices will slowly start to creep up because frustrated buyers are willing to throw a little more money into the game, just so they can stop playing and enjoy living in a new house.  #4 and #5 are both causes of rising prices.

4.  Reduced Distressed Properties
More homeowners are doing better these days, meaning fewer and fewer are being forced into foreclosure and short sale situations.  Over the past 2 years, the number of foreclosed properties have fallen steadily (and sharply at that) in the Northern Colorado region.  Because distressed properties originally caused the price declines, having fewer "negative" properties on the market help lift the market as a whole.  On top of that, the distressed properties that are on the market are getting bought faster, and for nearer list price than they were in the "bad years". 

5.  Multiple Offer Situations
I alluded to this point earlier - increased competition causes prices to rise.  Unfortunately, the world of multiple offers is not an easy one.  Finding the perfect home, reviewing the comps and ultimately putting in an offer is stressful enough, until you find out there are 3 more offers out there.  You may ask yourself, "How badly do I want this house?".  You talk yourself into (and out of) paying more for a home.  You justify why or why it isn't worth it to raise your offer.  Ultimately, you shell out a little more money, or you move on without getting the home.  The competition is stiff, some of these buyers have been looking since the late summer and they know what's at stake.  You're another casualty in the multiple offer battle.

Ultimately, given the right strategy and preparation, buying doesn't have to be so difficult.  Understand the swiftness of the market before you jump in so you know a good property when you see it.  Talk to your Realtor about how to gain a competitive edge and craft a winning offer.  It's all about understanding the market so you know exactly what to expect.  That's how buyers win in this ever changing market.

Jared Reimer is a real estate expert at Prudential Rocky Mountain Realtors in Northern Colorado.  Real estate is his passion and he always wants to connect with like-minded and savvy real estate fans.  For more information or to get in touch with Jared, please visit his website at www.ReimerRE.com or email him at JaredReimer@ReimerRE.com

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