Buyer Demand: Running on Empty!
With the best of intentions, I asked readers in March's poll to tell me the price level at which they were very likely to buy a house, but things didn't work out exactly as planned.
You see, I posted the poll to test a theory that I had where buyers would be willing to buy at prices points much lower than I had anticipated. In fact, I had already begun writing (at least in my head) a story about how sellers could access significant incremental demand, just by lowering their prices a little. Well, the data didn't work out that way. Here's a graph of the responses:
The results of our poll indicates that nearly 80% of people responding will not seriously consider buying a house until prices drop below $450,000. The balance of the responses fell between $475,000 and $600,000 with a very pronounced skew toward cheaper prices.
The way I interpret these data, is that people believe that prices are set to drop very significantly over the next few years. The other thing I see in the data is that people aren't willing (and under new lending standard may not be able) to stretch comfortably beyond their economic means. I applaud this insight and this economic discipline--readers of this blog are clearly Prudent Bears.
This isn't good news for sellers, of course. If 80% of us are going to wait for prices to drop 25% or more before buying, demand is going to fall even further. I reported the other day that the pace of housing sales has dropped to an eleven year low here in OC, with these data in hand, I can only believe that I will write another posting at this time next year stating that demand at that point is at 12 year low.
Bears, during our last housing downturn in OC, prices dropped 30% over the course of six years. Clearly we are looking for some of that same magic to happen again. Keep your powder dry, stay the course and keep your eye on the market. Your discipline will be rewarded.
Vivo los Osos!
5 comments:
This will be an interesting thing to watch over the next 6 to 12 months. I don't foresee radical pricing changes in OC for some time. Already back in 2006 one could observe homes on the market for 25 to 55 weeks with no takers. Where I live (Lake Forest), there has been little to any price movement for sfh's, which still hover around $600 to $750K (3 bed, 2.5 bath), sometimes more. It is difficult at this early stage of 2007 to ascertain whether sellers a.) still don't get it that the big gains are gone and must lower prices to attract buyers, b.) don't understand that the pool of available buyers has been sliced by three-fourths in OC due to the lack of toxic loans, c.) sellers are not desperate enough to lower prices to close a sale, or d.)when in danger of future foreclosure, they don't have permission to short sale their homes.
Some are saying prices in OC could decline by 20 to 30%. I'm not holding my breath. Anyone who wants to live in Lake Forest,CA, unless they earn a certain $225,000 salary per year, might as well rent.
Buyers have been systematically removed from the market by the change in qualifying requirements of the banks.
Additionally, there has been a general population exit from CA. In particular, OC migrating to AZ, TX, IE.
The market is correcting itself, as evidenced in $$$/ft^2 pricing, dried up demand, etc.
The boat turns real slow...
Prudent Bear:
It should be "Viva los Osos"!
Also, a poll given on a housing bear blog isn't exactly scientific research...
Hmm...so if buyers can hold out long enough and sellers get desperate enough to get rid of their homes, the OC MAY see some really cheap houses! (Which honestly, where I'm from here on the east coast, $400-500,000 spent will get you a REALLY nice house, probably the equivalent of what'd you get for like $800,000 or more in many parts of Cali.
Working for a company that provides internet marketing solutions and real estate leads I get the chance to talk to hundreds of agents nationwide every week. It's been very interesting to see the way markets in different areas are going.
Overall, it definitely seems like there is a big trend of people moving to central and mid-western states (Utah, Colorado,Texas, etc). Sometimes I wonder if people wanna get away from coastal areas b/c of the weather...hmm.
Anyway, with the way things are going in the OC maybe I'LL be able to afford a house out there in the next year!
Thanks for the insightful post! Looking forward to more of them.
Carlgrace,
No, it's vivo los osos.
You might want to comment again aftet you've finished your Spanish 101 class.
TNJ
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