Real Estate

Who will be the future homebuyers?

By From page HS3 | January 31, 2014

Sales activity is likely to be much slower this year than last. December sales for El Dorado County were off by 24 percent from December 2012. It was the fifth straight month of declining sales. That’s pretty much the same story for the rest of the state. According to DataQuick, Sacramento County home sales were about 20 percent below their historical average for December and in Southern California and the Bay Area, sales figures were the lowest for any December since 2007.

One reason cited for declining sales is the low number of homes for sale. As of last week, the Multiple Listing Service was showing 550 homes in El Dorado County currently listed. That’s 24 percent lower than a year earlier and half the number of homes for sale during January three years ago.

There are fewer sellers today because many who had been waiting for the right opportunity have already listed and sold their home. The 30 percent bump in the median selling price of a county home last year started a  sellers’ stampede, allowing then to do what they had wanted to do for several years — move. This caused a spike in inventory which began in 2012. That’s pretty much over.

There would be more listings but many would-be sellers still don’t have sufficient equity to sell their home to go buy something else. They’re staying put, waiting for further increases in property values. Realtytrac, a source of housing information, recently released its Home Equity & Underwater Report showing 9.3 million U.S. residential properties were worth at least 25 percent less than the combined loans secured by the property or 19 percent of all properties with a mortgage.

In addition to fewer homes for sale this year, there are likely to be fewer sales. Many buyers who drove the market over the last two years are no longer players. Long-term investors who accounted for a big increase in the number of sales priced less than $200,000 are no longer buying. First-time buyers, who in the past took advantage of low-priced foreclosures and short-sales, are as scarce as inventors. Short-term flippers are pretty much out of the market and the undecided fence sitters who were waiting for home prices to bottom out have already purchased a home. The fundamental pent-up home buying demand has been satisfied. Everyone that should have, could have and would have now own a home. So who will be the new buyers?

Sure, there will always be a certain number of families buying homes. Folks will continue to move to our county and new households will continue to be created. The intensity of the market and the number of sales, however, is likely to taper from previous years. That’s not all bad. A more evenly balanced market allows buyers to make better buying decisions and prevents another price bubble from forming. The 4 to 6 percent property appreciation rate that housing economists are predicting for this year is attractive to homebuyers and keeps sellers’ expectations in check.

Another change this year will be in the profile of the most common homebuyer. Investors and first-time buyers are being replaced with trade-up and boomerang buyers. Both groups will have different priorities in their selection of housing and will interact differently with sellers in their negotiations.

This isn’t the first rodeo for trade-up buyers who have purchased and sold at least two other homes. This will be their last or next to last purchase. Many have patiently watched from the sidelines, refusing to participate in the past frenzied market. Now that sellers have less of a negotiating advantage, trade-up buyers are venturing out in search of another home and flush with cash from the sale of their home. A quality address is more important than price. They will pay a premium for upgraded features and a secure community lifestyle. New single level homes are their preferred choice. They will have in excess of a 20 percent down payment when applying for a mortgage and one-third of this group will pay cash. Trade-up buyers will be less sensitive to any increase in interest rates, expected to average more than 5 percent this next year. Trade-ups will not make a hasty buying decision. If, after selling their existing home, they are unable to find a suitable replacement they may rent until the right house becomes available.  Many trade-ups will be from out of the area.

Another most likely buyer driving sales will be the “boomerang buyers.” These folks lost a home in a foreclosure or short sale and are back looking to buy a home. Many lost homes going back to 2008 but policy revisions to FHA and more recently to Fannie Mae, now make it possible to buy a home as recently as one year after a foreclosure. There are restrictions. Most boomerangs buyers will be local and have knowledge of the area.

Boomerang buyers have learned a tough lesson. They will be more cautions with their next purchase and mortgage financing. Affordability will trump condition and location. They will sacrifice on size and amenities. Having lost one home, resale value will be important. Boomerangs have been renting and will be anxious to buy a home again.

Ken Calhoon is a local real estate broker and can be reached at [email protected]

Ken Calhoon

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