The Power Of Mindset


The power of mindset is truly an amazing thing. By way of illustrating this fact I offer the following for your consideration.
This past week, I was in Anaheim for the National Association of REALTORS ® business meetings. And, at those meetings, I had the occasion to hear the President of the California Association of REALTORS ®, The Hawaii Association of REALTORS ® and the Guam Association of REALTORS ® all speak to us about their markets.

This is what they said. Properties listed are selling quickly at or near list price. Inventories are low by traditional standards. In all three places, prices have been stable or on the increase for a protracted period of time and yet they are in a buyer’s market.

Think about this for a second, demand is higher than supply. Prices are (in many areas) rising and they are in a buyer’s market. For the life of me I cannot remember the last time that this scenario has played out like this.

The classic law of supply and demand is that when you have demand exceeding inventory you have a seller’s market. This means that the seller in most cases can control the terms of sale ie: price, length of escrow, concessions (if any) you get the idea. In markets where these conditions are prevalent the sellers are king and the buyers know it.

So to find ourselves in a buyer’s market despite all the conditions prevalent which would be indicative the contrary there has to be an explanation. And, I would contend that this is only explainable if you take a close look at the mindset of the typical buyer today.
In most markets the typical buyer is purchasing their first home. All around them they see the remnants of those who had bought before them only to see the market collapse and values fall nearly as fast as they had risen.

This buyer no longer trust what he sees as being fact. In the early to mid- 2000’s everywhere you looked home values were going up at a rate of  a hundred thousand dollars a year.  Most homeowners made more in appreciation then they did of their day job. And, from the outside looking in there was no end in sight. Houses continued to sell, buyers continued to get loans and on the surface the gravy train seemed to have no end.

But what we now know is that this market was built on quicksand. It had all of the structural integrity of a house of cards. And that the only possible scenario would be that it would (and ultimately did) collapse under its own weight.

You see, that market was fueled by buyers who could by with little or no qualification. The typical buyer did not need to prove income, he only needed to have a nominal credit score and he could purchase almost anything he wished to purchase without fear of rejection.
What we now know is that without safeguards from the lending industry no market can protect itself from collapse.

And, that is why we probably will not see this type of collapse again for a very long time.
You see, today’s buyers must have a much higher credit score to purchase. They must have verifiable income. They must provide proof of past income (tax forms and W2’s).  They must also have sufficient reserves (cash) to sustain themselves in the event of a downturn in the economy. In short the buyer of today is protected from himself because even the most qualified of buyers must jump through more hoops then they have had to in almost any other time in our history.

In short today’s buyer must prove that he or she is worthy of the title “homeowner” before that loan is granted.

So, this brings me back to the mindset theory. In a market where inventories are low, sales numbers are at or near traditional numbers. And, values have been stable for the past couple of years. The only explanation that makes sense is that the mindset of today’s buyer is that this market is not real.
Unfortunately for those who fall into this false sense of insecurity for them it will mean most likely that ultimately they will miss a truly great opportunity to purchase the home of their dreams for less than they could build the same home.

Now I have seen this scenario play out (over the course of my career) before. And there are only two possible results of subscribing to the mindset that says today’s great values are not real or sustainable.
One will be that the buyer who has this belief will wait until prices are rapidly increasing and he or she will pay far more for their home than they could today. The second possibility is that the buyer will wait too long and be priced out of the market altogether thereby losing the chance to purchase at all.

So today, I would say to you that it is very safe to believe what you see. To refuse to acknowledge the obvious is to put at great risk your opportunity to share in the great American dream of homeownership.


Comments

Popular posts from this blog

Purchase Price V Interest Rate

2425 Chandler 4 Simi Valley, CA 93065