There’s lots of focus on how home prices have changed since the previous “bubble”, but let’s talk about how buyers have changed. Here’s some observations. What else have you noticed?
1) More picky: During the previous housing “bubble” buyers seemed so desperate to purchase that they pulled the trigger on about anything, but they’re much more discerning these days. Of course let’s remember underwriting has changed dramatically though too. In the past many properties flew through the loan process without hardly any scrutiny, but lenders today are incredibly strict, which has certainly propelled a more picky feeling in the market.
2) More patient: Despite a housing shortage buyers aren’t willing to pull the trigger on junk. They’re simply more patient for the right house and they want to make an informed purchase (and even feel like they’re getting a good deal where possible too).
3) More informed: Just as the “bubble” began to pop we had companies like Zillow and Redfin coming to the forefront. Well, now they are household names and buyers are basically obsessed. Seriously, buyers scour these sites day and night, and they know about every single new listing, price reduction, and sale. This doesn’t mean buyers don’t make value mistakes still, but it does mean they are more informed than EVER about prices. At the same time, guess who is not looking at Zillow as much? Sellers. This is a huge issue because it means sellers are not as in tune with the market these days, which means they’re prone to overprice.
4) Financial mistakes: Buyers remember the pain of financial turmoil in the past, so they’re sensitive to repeating mistakes. For instance, I talked with a buyer considering purchasing the highest-priced listing in a neighborhood, but he’s concerned we’re at the top of the market. This buyer asked, “If a buy right now and the market turns, would it be possible I’d have to hold on to the house for 10 years before values come back?”
5) Higher expectations about condition: These days buyers have higher expectations about homes being in good condition. In other words they are much more picky about properties that are not in “move-in” shape or upgraded. Wait, there aren’t granite counters? What the? There could be many reasons for this, but I think heightened investor flipping activity played a huge role. In a fairly short period of time investors had a gluttonous real estate feast by purchasing an avalanche of bank-owned homes, rehabbing them, and selling them. This helped quickly upgrade the housing stock, and also widen the price gap in some areas. What I mean is values used to be very tight together as you can see in the graph below, but now the price spectrum is simply wider since buyers are willing to pay more for rehabbed homes in today’s market. I’m not saying this dynamic is in every neighborhood, but I definitely see it in quite a few areas.
6) Less cash-out refinances: Everyone and their Mom had a boat before the “bubble” burst because people were using their house like an ATM to buy toys. Well, today we don’t have that dynamic (image from Leonard Kiefer). Home owners are clearly cashing out less, which makes them sound financially wise, but let’s realize lending guidelines have changed to make it more difficult to ATM your house. Moreover, many owners are sitting on 3% interest rates, so why the heck would they trade pulling out cash for a much higher rate?
NOTE: I updated this post with “more informed” above after Peter left a stellar comment (thanks). This is such a big point. I can’t believe I didn’t mention it while writing this, but it didn’t come to mind at the moment. The irony is I’ve been talking about this in other posts and in person so much lately. Ha. Well, it’s fixed now.
I hope that was interesting or helpful.
MARKET UPDATE VIDEO: A few days back I did a screencast to talk through trends. Lots of people are wondering if the market is tanking or softening, so I wanted to pitch in two cents. Well, the video is actually 20 minutes (there’s lots to say). Anyway, give it a view if you’d like here (or below).
SPEAKING GIGS: If you’re around, I’m doing a blogging class on October 11th at SAR. I’ll be speaking at the AI’s 2018 Fall Conference in San Francisco on October 19th and AppraiserFest in San Antonio on Nov 1-3.
Questions: What else do you think has changed about buyers since the “bubble” burst? Any stories to share? I’d love to hear your take.
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Ryan, I think your observations are spot on.
Thank you so much Bryan.
I love the observation about the buyers being more picky about condition. Few people would pick up on that and have data to support it. You’re the best Ryan.
Hey, thanks Gary. That’s so nice of you to say. Yeah, buyers have grown extra finicky in recent time. Some of that might stem in part from the advent of HGTV, DIY Network, etc… We’re just constantly thinking about real estate in our society now. And then there’s crafting, Pinterest, etc… There is so much happening to help shape design and expectations. Whatever the cause, it’s amazing because prior to the “bubble” bursting expectations were much lower. Not so any longer.
Great article. I think you touched on a lot of great points. Number 5 is certainly true.
Another thing that is different is that buyers have more access to properties via technology than they did before. Real estate agents used to hold all of the power with their access to MLS. Buyers are more in the driver seat now than ever. They are able to comparison shop online while Netflix binging (personal experience). So we have a market with informed buyers keeping real estate agents on their toes as they show properties to their buyers. The same can be said about mortgages. Buyers are able to research mortgages online, are more informed about interest rates, and they don’t want loans with risky features. Buyers would rather rent than roll the dice on an ARM.
Excellent stuff Peter. Thank you for the comment. This is a nail on the head to enhance the post. I really should have mentioned this above, but I didn’t think of it while writing the piece.
This is a huge change for buyers. In fact, I talked with a buyer the other day who is feeling frustrated with his real estate agent. He feels the agent is not doing enough to help him find a house. So I asked one big question. When was the last time you purchased? Sure enough the last time was prior to the “bubble” bursting and really before Zillow and Redfin came to exist. So I encouraged this person to talk with his agent about expectations, but also to be in tune with the reality that the search game has simply changed. These days in many cases buyers will find the house instead of the agent because buyers are absolutely obsessing over new listings, data, etc… My wife actually found our house a few years back when we bought. But my good friend who we used as an agent was very wise to let us know from the get-go that we would likely find the house instead of him, and that his main value will be given during negotiation. He was 100% correct (and he did bring value too).
Anyway, thanks again.
Great post, Ryan. I have seen a lot of #5 in the Birmingham area. It seems buyers want the home to be in move-in condition even if it is 50 years old. I also think they are more informed as well. Great list here.
Thank you Tom. It sounds like our buyer pool has similar expectations. Remember during the foreclosure crisis how beat up many homes were? Part of it was the upheaval of hard times, but the market was also simply different then. It wasn’t so upgraded so to speak. Times sure have changed. I remember in 2003 through 2005 how granite counters were a big upgrade for buyers of new construction, but now it’s standard. The market simply expects more now (and I bet solid surface counter companies are loving it).
Also the price of granite and other stone counters has come way down, from personal experience I know that what use to cost $3000 now can be had for $500, there is no excuse for low grade counters anymore, unless you are an apartment complex and outfitting 100 units at a time.
Excellent addition here Nathan. Thank you. Cost can certainly change what we see happen in the market. I think we see something similar with solar panels. They’ve become more common as costs have come down.
On a related note I spoke with a contractor yesterday at a property in Tahoe Park and the entire kitchen was remodeled recently. The counters were Quartzite and they cost only $700 for multiple slabs. That definitely compliments exactly what you said about cost. Thanks.
All true.
#7 Buyers’ perspectives are dominated by the free money and collapse of 2002-2012 period, much like the memories of the Great Depression of a few generations before. Both are exceptions to long term trends caused by lack of controls in the the financial markets.
So good Jeff. Thank you. I always appreciate your insight. Yes, these years are definitely ingrained in the minds of buyers. On that note I think it’s one reason why wer’e always asking if we’re back to the “peak” yet. It’s like we want prices to “recover” to that level even though prices in 2005 were heavily influenced by rampant speculation and out-of-control lending. It’s like Uncle Rico trying to get back to ’82 to relive the glory days. Sometimes it’s just better to move on and see today for what it’s worth… 🙂
Great thoughts Ryan! I have seen these things also. It’s odd that many in the market have become picky when we have had such a shortage of inventory. To your point in some of the comments made in this post, I wonder how much is just people’s expectations being shaped by TV shows, the media and changes in our modern society. It’s interesting. Times are changing.
Thanks Jamie. I’m sure there are many things shaping buyer perceptions. It’s just so key for us to be in tune with what buyers are believing and what decisions they’re making. I concur with you about the oddness. You’d think anemic inventory and being finicky wouldn’t exist together, but here we are. It just goes to show a market isn’t only about supply and demand. In other words, a low supply doesn’t shape absolutely everything about the market. Let’s keep watching.