Over the last decade, real estate and the process of home buying have experienced tremendous change. The market in general has gone from boom to bust and is now clawing its way back to some semblance of normal.
The application of rapidly expanding technology has forever changed how people shop for homes, and it all took place during the largest economic contraction since the Great Depression. Navigating those new and uncertain waters has no doubt impacted the psychology of today’s home buyers. The mindset of people out house hunting has been reshaped by their past experiences, current concerns and future fears. Here’s how some of those elements have evolved, as well as what that means for the prospects of securing a successful sale.
Past experiences: These days, buyers are gun shy. Getting someone to pull the trigger and make an offer can be a long and laborious task. And buyers have good reason to be cautious. We’ve all just experienced the biggest downturn in the history of housing.
Until 2006, conventional wisdom was that house prices only went up. Then we all discovered they can also go down. And, due to mortgage schemes that required little or no money upfront, it was possible to find yourself suddenly owning more on a house than it was actually worth — something once thought to be all but impossible.
As the adage goes: “Fool me once, shame on you; fool me twice, shame on me”. If you make a mistake buying a new television, or even a new car, that’s a decision you can recover from. But blowing it on a house can haunt you financially for years to come.
Current concerns: Although we’re on the mend, real estate and the economy in general are still fragile. The smallest bit of bad news can put buyers on the sidelines, and lately it seems like we’re always climbing the proverbial wall of worry.
Constantly responding to crisis management keeps everyone on edge. In just the last six months, we’ve had a sudden jump in mortgage rates from 3.5 percent to 4.5 percent, a nasty fight over the federal debt limit, a government shut-down, the specter of military action against Syria and the botched roll-out of Obamacare. It’s hardly the kind of stuff that inspires consumer confidence, and certainly doesn’t put people in the mood to go out and make big financial decisions on something like a house.
Future fears: For now, it appears that a high level of uncertainty will continue, and visibility down the road is poor. Come January, we’re headed for another fight over the debt limit. Plus, ongoing concerns about whether or not Obamacare will work as advertised can have a significant impact on both the financial and personal security of many Americans.
Health care is a large part of the family budget, and it directly affects us all. Anxiety about its affordability and availability is a large part of what currently shapes consumer confidence.
And finally, 2014 is an election year, which will create plenty of finger pointing and the usual claims that the world as we know it will end if one side or the other isn’t granted full access to the levers of power.
How does this affect home buyers and how they approach the task of finding a new place to live? Since the housing bubble burst, here’s a list of changes we’ve observed in buyers:
-Buyers take longer to decide. Clearly, they aren’t in any kind of hurry. For now, interest rates aren’t moving much, and home prices are rising, but slowly. Consequently, there really isn’t a lot of downside for buyers to take their time, and given what we’ve been through with respect to real estate, an extra course of due diligence is a reasonable request.
-Little things become big things. When looking over a house, buyers are getting out the magnifying glass, and even small problems can become a deal killer. Buying a house has always been a scary proposition; it’s the biggest purchase most of us will ever make, and selecting a place to live is a big part of anyone’s life. Given that there’s so much on the line, many buyers are always looking for a way to get out of making a decision, and at times, they’ll grab for just about anything as a lifeline. And having the housing crisis fresh in our minds only exacerbates the fear buyers have of making a bad choice.
-Resale is important. Back when housing was booming, people were pretty confident that no matter what kind of house they bought, it could be sold for a handsome profit at just about any point down the road. That’s no longer the case. Home buyers are now giving much more thought to what will happen if they need to sell. And that means they’re scrutinizing a variety of other considerations about a property. Location, condition and the ability of a house to appeal to a broad range of potential buyers is of additional importance when you can’t rely on a rising tide to lift all boats. If the tide goes out, you better have a boat that can sit solidly on the bottom.
-Negotiations are more difficult. Not surprisingly, home buyers are much more willing to hold out for a good deal. In the old days, when house values were appreciating at 10 percent or 15 percent a year, you could more easily forgive a few bucks in the purchase price. Today, buyers, and especially investors, know that it’s necessary to buy right, because appreciation might not come to the rescue. Other aspects of contract negotiations are also more difficult — most notably, buyer-and-seller deliberations over property condition and home inspections. More than ever, buyers are hanging tough on wanting everything to be up to date and in excellent working condition. We sell a lot more home warranties these days with a home purchase, primarily because buyers are looking for every possible method of reducing risk.
In general, the attitude of today’s buyers isn’t because people have suddenly gone soft. Rather, it’s a rational response to the rough ride we’ve had for real estate and the uneasy feeling that, if we’re not careful, history will, indeed, repeat itself.
Fortunately, everything goes in cycles, and there are signs that better times are ahead. Last week’s jobs report ((((12-6-13)))) was better than expected, and the unemployment rate fell to 7 percent. We seem to be on the cusp of an energy revolution that will finally sever our ties with unstable and unfriendly suppliers of what fuels our economy. And most important, it’s that holiday time of year — a moment when we can take a break from the world’s worries and simply enjoy family and friends.
Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is McWilliams@BobDonna.com.