Picked-over Inventory?

Wanted: 'Something Not on the Market'

One of the puzzles of a supposed Buyer's market, with 27,000-plus single family homes for sale area-wide, is having serious Buyers who can't find what they're looking for (see my earlier post, "Buyer's Market Conundrum").

Which is why you increasingly hear Realtors who are networking for their clients say, "I'm looking for something not already on the market."

What they're really saying is: 1) my clients have already seen everything currently for sale that meets their criteria; and 2) they don't like it.

How is that possible?

If you're looking for a specific kind of home in a specific location, suddenly, 27,000 homes collapses to perhaps 10-15. Assuming that one-third of these are overpriced, and another one-third have updating and/or floor plan issues (which ultimately amounts to being overpriced), the number of suitable homes dwindles to a handful.

Of the remaining, "legitimate" contenders, you'd further expect several to sell quickly, because they are relatively scarce. (In fact, many would-be Buyers can tell you that that's happening.)

Voila! Your clients have already "seen everything that's for sale."

Buyer's Market Conundrum

"I Can't Find Anything I Like"

"Water, water everywhere [but] nary a drop to drink."

--Samuel Taylor Coleridge, "The Rime of the Ancient Mariner"

One of the conundrums of a housing market supposedly flooded with inventory is Buyers who lament that they can't find anything they like.

What's going on? Is it just their imagination?

Actually, I think it's a combination of a couple things.

While Twin Cities inventory is actually coming down now, it's still at a high level.

However, it's not at a high level everywhere.

If you're looking for a foreclosure in Minneapolis' Phillips or Camden neighborhoods, you can literally pick from hundreds of houses.

However, I can think of several neighborhoods where there appears to be a shortage of homes for sale right now. To pick just one example, the inventory in Linden Hills seems surprisingly thin at the moment, especially between $500k and $800k.

Clearly, some would-be home sellers are waiting for a stronger market. So Buyers who can't find what they're looking for aren't necessarily hallucinating.

But another factor is that the homes that are on the market can be underwhelming.

One aspect of that is real, the other more psychological.

In a softening market, it's not unusual for Sellers to overprice. When that happens -- surprise! -- their homes don't sell. As time passes, the owner becomes a little less vigilant about prepping the home for showings. Instead of all the lights on, it's dark; the once spotless Kitchen now has dirty dishes in the sink; the beds aren't necessarily made. And Buyers notice.

But it's also true that Buyer scrutiny increases as a direct function of time on the market.

The reason why the first week or so on the market is so critical is because that's when interest is highest. On a first date, little imperfections like a nasal laugh or big ears (Seinfeld fans could add significantly to this list) are endearing.

Six months later, every flaw, however minor, is put under a microscope.

So, too, with homes.

Finally, in a recession, people have less money to spend (not exactly a shock).

So owners who a few years ago might have spent a few thousand dollars on dressing up their home with new paint and carpet may not be able to do that now. Or, not see the merit in doing that. Ditto for perceived "extra's" like staging.

As a result, to my subjective eye, fewer of the homes debuting on the market now seem to have the same sharpness and appeal that they did when it was a Seller's market.