Foreclosure in Minneapolis>Question Details

Peter A. Eva…, Real Estate Pro in Minneapolis, MN

Why does it seem that many buyers are hesitant to purchase property this spring?

Asked by Peter A. Evans, Minneapolis, MN Wed May 23, 2007

It's a great time to buy. There are a lot of fantastic properties out there. I can't seem to get a straight answer from anyone, client or not. I'm putting this on here because I need to know so I can better help my clients and grow my business. No one gets anywhere by beating around the bush. Any input would be appreciated. I've never seen such a unique market in the past 10 years.

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21
I have the unique position of being a buyer in Minneapolis and since this question comes from Minnesota, who better to answer it! As a buyer, we have been looking at resale and new construction in Minneapolis, ST Paul, and all over from Prior Lake around to Stillwater, even in Hudson Wisconsin (since January) . What we are finding is that sellers are still asking unrealistic prices for this market. They are even more willing to face foreclosure than negotiate on an offer. (Personal experience with an offer we put in). Another reason is the glutten of homes on the market. With 34,000 units available, the choices are endless. We have the luxury to be picky. If a home is perfect but overpriced, we move on. If the home sits on a busy road, we skip it.. We are even seeing sellers asking too much for a 1970s rambler that needs extensive updating.

Sellers want two years ago prices, so buyers are waiting to see if sellers are ever going to face reality. The homes that are selling, are going for $40,000-$100,000 below the ORIGINAL list price, and most of these home have been on the market 6 months to 1 year, some even more. Another concern is the interest rate. Buyers are looking to save anyway they can. First time home buyers need the lowest % available. Income has not kept pace with the high cost of a home so many buyres are now priced out of the market because they just don't have the income. Yes, it is a good time to buy, but alot of people don't have the money to do so.

And in all honesty, some buyers are scared that if they buy now, the value of the home will keep decreasing and that they wil overpay.Hope this helps!
5 votes Thank Flag Link Thu Jul 5, 2007
'm with Jennifer: Mpls-area sellers are holding the line on prices (they are still averaging 95% asking price at sale) ----- but time on market is WAY up. We are in the process of moving back to Minneapolis after 4 years away, and there are simply no "sweet deals" in the prime areas.

My theory on MN is this: people are much more settled there than many areas of the country. If they are moving, they are generally not moving very far. In many cases, adult children are selling their aging or late parents' homes, and they have the luxury of waiting for top dollar. Carrying costs on paid-off family homes are small enough they can hold out a year rather than drop $40k or more to move a property.

I have been tracking properties in the Mpls metro since Feb. What I'm seeing now are a bunch of rank-and-file homes (3BR, 1.5BA, ~2000 sq ft) all holding at $400k to $499k being most of the inventory. Most are nothing exceptional, and they are not clear bargains. I did see quite a few "cherries" going cheap in March and April, but now all the cream seems to have been skimmed off the top, and the so-so homes are sitting with patient sellers refusing to rush to liquidate. The unique, larger, special old homes in the prime District 1 neighborhoods are all over 750,000 now, and not coming down a bit any time soon. Even the bank-owned properties have a lot of attitude-laced language in their supplementals, warning people that their "lowballs" will be sent straight to the trash bin without even the courtesy of reply. It's plain weird.
3 votes Thank Flag Link Wed Jul 11, 2007
Two reasons: buyers believe property prices may still come down BECAUSE (reason #2) of the uncertainty of the economy.
Web Reference: http://brian-brady.com
3 votes Thank Flag Link Wed May 23, 2007
The reason in San Diego CA and many other 'hot' markets of the 2000's is that San Diego California real estate market saw its high point in the summer of 2005.

Since then, home values have been in decline! This is fact and NOT opinion! At this point, many San Diego neighborhoods have had double digit value declines!

From the local San Diego Union-Tribune newspaper dated 3-18-2007, here are a few selected median home value drops just since February 2006 for resale homes:

Coronado 50%, La Jolla 15.6%, Pacific Beach 15.8%, North Park 15.8%, Ocean Beach 19.1%,San Carlos 19.1%

Keep in mind, the average San Diego median home price is over $550,000. So, a 15% decline is a $82,500 loss! If you purchased last year, even with 20% down payment, your San Diego home could now be worth MUCH LESS than the amount of your mortgage!

With my take on the background of the current San Diego real estate market expressed, my opinion on the immediate future is that we are now in a seasonal sales pick-up. In a few months, I believe that the downward trend will re-establish itself and not only only continue, but is likely to accelerate as the popular adjustable rate mortgages from the last few years come up for their first adjustment.

Yes, San Diego housing values could easily be down 25 to 30% from their summer 2005 values by the end of 2007.

Based on these facts, only a fool would believe the industry line of it's always a good time to buy real estate.

For some great 'insider' articles on the San Diego real estate market, which I believe will apply to any of the hot real estate markets of the past five years.....visit:

http://www.brokerforyou.com/brokerforyou

http://www.downtown-san-diego-real-estate.com/san-diego-real…
http://www.brokerforyou.com
2 votes Thank Flag Link Mon Jul 2, 2007
The best advice I ever got was in regards to the stock market but translates well to the real estate market. Buy when everyone else is scared and be scared when everyone else is buying
1 vote Thank Flag Link Thu Aug 26, 2010
Here's my opinion.... Consumers are smarter than you think. Don't blame it all on the media. I'm not in your area, but lets say cautious buyers are even MORE cautious now. Seriously, it is not just the media, as it is obvious home prices are still severely inflated. I don't need ABC news to tell me that a 2000 sq ft starter home in a suburb isn't worth the $1.4M they are asking. Time magazine isn't making up the statistics that more and more homes are being forclosed because people are not able to afford their adjusted mortgage payments. I know it is possible to get a mortgage, even a jumbo, if you have good credit. Real estate is an investment, regardless of whether it is your home or a rental property, just like how people invest in stocks, bonds, companies, etc. In the past real estate has been considered a very secure and stable investment, but honestly, right now, it appears volatile. Prices are all over the place. Speculators have abandoned their remodel jobs in order to sell quickly to recoup some $$ before prices drop lower. Obviously, cautious and responsible people want to see what the trend is before stepping into such a big investment that doesn't have easy liquidity.

Jennifer had mentioned, "Sellers want two years ago prices, so buyers are waiting to see if sellers are ever going to face reality. " In my area, a lot of sellers bought their homes 2-3 years ago and are asking 20-70% MORE than what they bought at in 2005 and 2006, when in reality, they should be asking for less than 2005-2006 prices. They remodel a kitchen and then ask for $600K MORE. Does this make sense to you? Some sellers are so far from reality... but haven't lowered their prices despite being listed for over 200 days. As Robert asked, "the bigger mystery seems to be, in markets where asking prices are steady but inventory and time-on-market have gone up dramatically, why haven't price reductions followed?"

Just because the current seller doesn't want to lose his down-payment money, doesn't mean I should over pay and lose my down-payment.

As a buyer, I am hesitant to sink my hard-earned $$ into a home in which I will lose the equity in my down-payment in a year. We have intentions of being in this for the long-term, but who knows, what if our work/family situation changes and we need to move in a few years. For example, how many of you realtors are now earning the same or more as you were 2 years ago?
1 vote Thank Flag Link Thu Jan 3, 2008
Short answer: buyers actively anticipate that prices will come down. Why?

1. Current over-supply. Prospect of more supply: foreclosures due to resetting ARMS in 2008, 2009, 2010, and 2011 (see http://patrick.net/wp/wp-content/resetchart1.jpg,

2. Interest rates unlikely to move substantially. FED will lower the overnight rate down to 3.00 by the end of 2008. I know the 30-yr rate moves differently, but I don't see any fundamental reasons for that to move up.

3. Reduced demand. Sub-prime buyers are gone, easy to get mortgages are gone. Getting a mortgage will only get tougher come 2008.

4. Learning. If in 2006 you faced a decision to buy or wait, and you waited, you got rewarded. So current buyers rather wait then buy. Of course, this is market specific (nothing like this yet in SFO, NYC, etc).
Let's face it, most markets are still at or near the top of the bubble. Don't believe me? Check out figure 2 in this report: http://www.mplsrealtor.com/Segments/Realtors/housingmarket07.pdf0. There is no reason why long-term housing appreciating should significantly exceed income increase (plus a bit to account for population increase).

6. Prognasticators were wrong in 2006, and buyers are acutely aware of that.

7. Negative news. This, BTW, makes everything worse. There are so many sources of housing news: monthly median sale prices from several sources, monthly new housing starts, existing home sales, new home sales. They have all been pretty negative for most of the country for the past, oh I don't know how many months,

8. Buyers who are actually serious about buying don't think there are real deals to be had. See Darren below. But what Darren says is true of the overall market (i.e., many people with low carrying costs are willing to wait for a long time), then we will see stagnation of prices for years to come.
1 vote Thank Flag Link Mon Dec 31, 2007
To answer the question of why consumers don't or pro-long buying; it might be helpful in understanding what is happening in the real estate market today. Inventory is high! Complicating the environment with the number of ready, willing and able consumers attempting to enter the playing field in buying a home have fallen over the last number of months. Thus, the general situation we have is supply and demand.

I'm sure most of you have had a chance to enter any one of the huge warehouse stores. They have a ton of inventory don't they? Now when you are looking for your items it will take a little longer shopping in one of these stores. Yes but, you are nearly certain you will not be paying too much on your purchase. This is the same emotional reaction today’s buyers are struggling with. There is and have been a rising number of properties that fit their needs. The difference is that most of the buyers have trust issues. They are hesitant to commit because a better opportunity is just around the corner. This is why in today’s market it is so important to surround yourself by the professionals who specialize in "servicing" the client s needs. To start they should be real estate professionals who know the local market environment. They should understand the tempo of the market. Buyers should be informed on the correct timing to react appropriately when considering making an offer, structuring the offer to close on time, developing an understanding of value vs. unrealistic wants and how people in the industry are compensated.

Hope this helps you better prepare yourself and your clients.

Best regards,

Carl@ssphomes.com
1 vote Thank Flag Link Tue Oct 2, 2007
As you can see, if they waited, they now can buy homes at 5-10% less then they could in the spring. They were hesitant because they were being smart.
1 vote Thank Flag Link Sun Sep 30, 2007
We have seen a rash of very high end home sales recently. I see that as a great sign for the rest of the market. Things have been admittedly slow. When you have an oversupply of inventory buyers lose any sense of immediacy.
1 vote Thank Flag Link Thu May 24, 2007
Maureen Fran…, Real Estate Pro in Birmingham, MI
MVP'08
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In Los Angeles County CA, SouthBay Beach Cities.. Manhattan, Hermosa and Redondo we are seeing a definite upswing over last year. The buyers are picky... homes must be in good condition and priced right but if they meet the criteria they are selling.. We have even seen a few multiple offers.. I think the main reason buyers are back is because they realized that the local housing market was not going to crash and interest rates are still very low..
1 vote Thank Flag Link Wed May 23, 2007
Kaye Thomas, Real Estate Pro in 90266
MVP'08
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You're right! It is a great time to buy properties across the country and trust me for every property you look at you'll find 5 to 10 more that catch your eye. Where the problem lies (at least in NY) is that as the property values decrease across the states because banks are being more conservative you find the rates rising. For the first time home buyer with excellent credit it's becoming just as costly as for those with sub-standard credit. In major cities there is no more room for expanding out so developers have started building upwards but the market is still there for small purchases and for people moving out of the major cities into countryside estates. Something that miht work in your benefit is to team up with and form relationships with local mortgage professionals, host first time home buyer seminars within the local community and even credit counciling sessions at no cost to your clients and they will remian a client for life.
1 vote Thank Flag Link Wed May 23, 2007
I just read this thread and everyone makes valid points. I'm a Minneapolis home buyer. I own a townhouse that has a low interest rate, so I'm willing to rent it out and purchase my next home. I made an offer to a bank-owned foreclosed property of ~$59K under asking and they countered at asking price. We walked away.

However, even if the price comes down, even if the bank comes back and wants to bargin with us.......what is the best deal to make right now in case prices continue to drop? For example: List price $450K, tax value $550K, last home sold in the area $420K......what do you pay so that 1 year from today, you don't have a home that is now valued at $350K and you paid $400K?
0 votes Thank Flag Link Tue Apr 8, 2008
Ally, you remember that real estate, although having some national similarities, is regional. I happen to fell that there are currently fabulous values here in the Mpls./St. Paul market. We are not the over-inflated market that California may be by your account.

In light of 5.625% 30 year fixed interest rates today, I would hope that interested Buyers start to think seriously about swinging thier pens. These market conditions of great values and interest rates will not go on forever, and now is a great time to buy.....here!
Web Reference: http://www.toddnorsted.com
0 votes Thank Flag Link Fri Jan 4, 2008
Blame the media. Period.
0 votes Thank Flag Link Thu Jan 3, 2008
given all of the great answers below, the bigger mystery seems to be, in markets where asking prices are steady but inventory and time-on-market have gone up dramatically, why haven't price reductions followed? And when will they ...? I don't know anything about real estate, would like to be educated on this. It has surprised me as I've waited to buy, makes me hesitant.
0 votes Thank Flag Link Mon Dec 31, 2007
I see someone revived an old thread........

Many of the answers below are right on.....one of the other things that I think has had the market unsettled is the media and it's talk of the mortgage business in shambles. Many, many consumers know little about the mortgage industry and the avialble product out there, and I feel that the mortgage industry scare has many Buyers just taking a wait and see attitude. All they hear is about inceasing payments, foreclosures, arms, interest only and other terms that the mass know little or nothing about and would rather sit on the sidelines for a bit till all the dust settles.

I hope that makes sense.
Web Reference: http://www.toddnorsted.com
0 votes Thank Flag Link Mon Dec 31, 2007
In neighborhoods where I'm looking, inventory keeps going up but asking prices haven't declined. Seems like a good time to wait in this area, at least 6-12 months or until something changes/clarifies.
0 votes Thank Flag Link Mon Dec 31, 2007
Hey Peter, Consumer confidence is at an all time low regarding real estate. The media has a HUGE part to play in this. Plus, I know in Denver we have more inventory so buyer's are taking their time to shop just because they can. My sellers are starting to make buyer's offers to buy their property. Especially if the buyer's have come by more than once to see it. I know that's a little different, but so is our market right now. Hope this helps.
0 votes Thank Flag Link Mon Oct 1, 2007
I personally think the media is spreading so much doom and gloom, people aren't able to sift through and see the bright side. I'm constantly waging the PR battle on how great a time it is to buy (and actually, for homes priced right, it can still be a great time to sell). I wish we could see a more effective effort from our associations, but for every ad they run you get a one-sided 60 Minutes piece or a Star Trib story about people who wanted to buy, but decided it was more "economically viable" for them to rent (see last weekend's Saturday edition, I believe it was). So I've found myself being an educator for many potential clients. Then again, when you show your expertise, those people are more likely to go with you. So in a way, it can be a good thing.
0 votes Thank Flag Link Tue Jul 3, 2007
Here in the Bay Area's Peninsula, I'm scratching my head wondering what in the world you're asking. Prices continue their relentless northward march, with the epicenter of multiple offer craziness being Palo Alto.

Many other parts of the country are hurting, however. The relentless media "market meltdown/bubble" drumbeat has buyers a little skittish.
0 votes Thank Flag Link Thu May 24, 2007
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