- We just don't have enough inventory.
- Buyers are on the fence; they look at homes, but they're not making offers.
- Buyers are too picky.
- Buyers are unrealistic – they want everything, but they don't want to pay for it.
Corelogic reported in early May that there are currently about 2 million existing homes for sale nationally. This is very similar to the inventory levels we saw between 2000 and 2003.
But there's an important difference. From 2000 to 2003, we saw an average of 5.7 million existing home sales per year. But in 2013, there were only 5.1 million existing home sales, and so far this year, we are on target to see only 4.7 million homes sold – a 7.5% drop in sales from last year. And the decline in new home sales this year so far is even greater – 13.3%.
If we have the same level of inventory now as we did 10 years ago, why are there about 1 million fewer homes being sold?
An important part of the reason, according to the CoreLogic report, is that about half the current inventory of existing homes is obsolete:
- "... properties that are no longer desirable because their characteristics do not match what buyers are looking for in a home. For example, homes that are located in once, but no longer, popular locations, or homes that are lacking in local amenities sought by today's buyers."
A lot of this "obsolete" inventory consists of foreclosed/REO properties, many of them located in areas that are no longer considered desirable. And location, as any Realtor will tell you, is everything.
At least some of those properties could sell (to first-time buyers, for example) if they are not located in blighted neighborhoods, and if those buyers are working with lenders who have the expertise to arrange 203K or conventional rehab financing.
But there is also something else going on here:
The New Shadow Demand
The Corelogic article refers to a large number of consumers who are looking for a home, are qualified to buy a home, and are waiting because they can't find the "right home". Corelogic refers to these potential buyers as the new "shadow demand".
These potential buyers are in the shadows only in the sense that they haven't bought a home yet. They have, however, taken one or more of the following steps in that direction: they've looked at properties online, they've visited open houses, they've talked to Realtors and been shown properties on the market, and they've talked to lenders and/or have gotten prequalified or preapproved for financing. These are the buyers that Realtors believe are "too picky", "on the fence", or "unrealistic".
But I don't know, they seem pretty realistic to me.
Look at it from their point of view. Within recent memory (6 years), the entire housing market collapsed, decimating home values, sending reverberations throughout financial markets worldwide, and causing massive layoffs. Although the official unemployment rate is now "only" 6.3%, that's only because we're not counting people who are underemployed, or who have given up all hope of finding a job. Every one of these prospective home buyers personally knows people who lost their homes in the crash, lost significant equity in their homes, lost their jobs, or all three.
Would they like to own a home? Yes, absolutely.
But that doesn't mean they're willing to gamble their financial future and their current quality of life just to be able to say they own a home. These homebuyers who are seen by Realtors (and by many loan originators) as being "too picky" are, in many cases, looking at the available inventory in their area, are comparing it to their current living situation, are doing the math, and deciding that, for now at least, the price isn't worth the risk.
It is certainly possible, and even likely, that these consumers are seeing an incomplete picture. It's possible they're being influenced too heavily by their fears – fears of another housing crash that would destroy any equity they may have built in their home, fears of losing their jobs, and fears of another economic downturn – or just a continuation of the economic stagnation we've seen for the last 7 years.
It's also possible that there are homes for sale in their area that would, in fact, represent an improvement in both their quality of life and their family's financial strength, but they lack the imagination or the information to be able to see it.
But who is going to help them see it? If they're working with a Realtor, they may like their Realtor, but they are also fully aware that the Realtor wants to sell them a home. They may be working with a lender, but in the vast majority of cases, their lender has focused exclusively on their ability to qualify for a particular loan product.
What they don't realize (because their loan officer hasn't taken the time and trouble to explain it to them) is that the lender has the same interests, and is on the same side of the negotiating table as they are. No responsible lender wants to loan them money to buy a house they cannot afford. No lender wants to loan them money to buy a house that the market (as determined by an appraisal) says is not worth what they are being asked to pay for it.
Loan officers who have the vision and the courage to position themselves and serve as "Home Buyer Coaches" are in a unique position to help their home buyer clients arrive at a strategy for finding and buying the right home at the right price. Such loan officers are also in a position simultaneously to be of service to their Realtor Partners in helping them move non-obsolete inventory.
And it is only when we begin to see more of this inventory moving that the market will create the conditions necessary to motivate "shadow sellers" – whether they be homeowners who are hesitant to sell now, or builders who are cautious about building now – to put more inventory on the market.
The first step forward is for loan originators to learn how to talk to prospective homebuyers in a way that helps them feel safe and comfortable in confiding their fears and concerns about buying in today's market. That will lead to opportunities for originator/homebuyer coaches to provide objective information and coaching that will help these consumers make the right decisions to fit their goals and situations – decisions that clients will be able to look back on with satisfaction and pride in the years to come -- whether they decide to buy, or to wait.
I will show you how you can take that first step forward in my next (free) online seminar, How to Do an Effective Home Buyer Prospect Interview, on Wednesday, June 11th at 3:00 PM Eastern time. If you have already registered for my "Who's Got Time for That?" Seminar series, you will receive instructions for joining the seminar in your e-mail beginning Monday. If you haven't registered or want more information, go here: