Tucson Real Estate 2007 The Buyers Revenge
October 30, 2008
Post Tags: First Magnus , house of cards , mortgage meltdown
There was blood in the water during much of 2007. A lot of that blood was due to unexpected sources. The House of Cards for speculators was collapsing and another source of blood was the market itself.
The Unexpected Source 1 (Sellers that weren’t selling)
Blood in the Water
Remember those “sellers” who were “Testing the waters”. They did a lot of harm to people who really did need and want to sell their homes. Because so many of the homes on the mareket were “Testing the waters” the perception was one of a “Flooded Market” in which high inventories were responsible for declining prices and fewer buyers being in the market. Buyers now saw this as their year, the year of Buyer Revenge, the year of the Low Ball Offers. With so many homes on the market sellers must be desperate, right? For the most part, NO they weren’t. This confused the buyers even more. Why weren’t these sellers desperate to sell and willing to lower their asking prices with so many homes on the market? Because in this case the perception was WRONG. Sellers “Testing the waters” aren’t about to lower their asking price. They don’t need to sell, they are just waiting for the miracle buyer to come along.
That year was a lot of fun, NOT.
They can always Counter
There were a couple of times we took out buyers who make ridiculous “Low Ball” offers. They were warned that an offer so low might be taken as an insult. The response “They can always counter.” The buyers were right, they did counter. The sellers countered at $50,000 more than the original asking price and in the counter stated “If refused, no other offers will be entertained from this buyer.”
The Unexpected Source 2 ( Mortgage Meltdown )
Falling House of Cards
I mentioned how on Thanksgiving weekend of 2005 it was like someone tripped a switch and all the buyer/speculators were gone. They had driven out anyone trying to purchase a home to live in by the run up in prices going beyond what real buyers could afford or were willing to pay.
There was slow stability returning during much of 2007 and closed transactions were increasing almost every month. Then August 2007 came and First Magnus was gone in a day. Literally, one day it was in business and the next it was gone. Door closed, people laid off, mortgages to be funded left dead in the water. The closing of First Magnus was the first pebble in the water which would ripple across the Nation and our entire economy. Many mortgage firms would follow to near extinction including Country Wide deemed “To big to fail”.
Wall Street decided almost overnight that the Emperor had no clothes. They quit buying the securities bundles. Without being able to sell those securities Lenders had no funds to lend, they had no funds to even pay employees. The House of Card with the name “Fog a Spoon Get a Loan” had fallen, suddenly and with a very loud crash. The dust of which isn’t settled yet. We now live in our own version of Nuclear WInter. It could be called Mortgage Meltdown Winter or No Docs Winter, no matter the name it started a chain reaction.
The Music Stopped Holy Cow I Own a House?
There were speculators that were even late to the party, they bought still with the mindset they could slap on some paint and lay a cheap carpet and flip it to someone else. Some held onto those properties thinking the market would change. It did change, but not as they expected. Sales prices and median sale prices slid throughout the year and on into 2008. The bubble didn’t so much burst as it slowly deflated. Draining speculator resources slowly and forcing many to walk away. It is too bad many had put nothing down, there loss was not deep or severe enough to keep them out of the market again. Hopefully, there will never be another period in the US Reals Estate market when “Fog a Spoon Get a Loan” will recur.
Buyer Best Bang for the Buck (New Construction)
If 2007 was the year of buyer revenge, where did they make out? New Construction was the gold mine for buyers ready to take advantage of huge incentives builders were making to clear houses off their books and out of their inventories. You could almost tell when a quarterly or annual earnings report was coming due. The month before, huge incentives were being offered to buyers and agents.
In 2006 many builders stopped paying any commission to agents saying “We don’t need your buyers, we have enough of them without you.” The song was different in 2007, a typical “co-op” was 3%, It went down to nothing by the end of 2006. In 2007 to date it isn’t unusual to see builders offering 5 and 6% co-ops to agents for bringing them buyers.
It wasn’t just a good deal for buyers it was a good deal for agents as well. There were amazing incentives some even including pools along with all the upgrades of granite counter tops, executive height cabinets and full front and back yard landscaping packages. The buyers really could pretty much set a price and ask for the moon and in many cases got it, especially if they were cash buyers.
Residential Resale Slumped
In much of 2007 the Tucson residential resale market in communities where the builders were still building was pretty much flat. Here was the dilemma. A Seller in the resale market could not compete with the builder. Some builders were throwing in pools, granite counter tops and a year of HOA dues with the purchase of a new home. Some of these had full landscaping packages and all kinds of upgrades included, as mentioned above.
These new homes with all the upgrades were selling for less than the seller’s paid for their homes without any upgrades a year or two before.
If a seller was in one of these new construction communities which had not yet reached “Build Out” they had two choices. First, wait. Second, take a loss and lower your asking price.
This year, 2008 has seen fewer building permits issued for new construction and many communities like Heritage Highlands are now built-out with only residential resale available. This has helped the resale market in Tucson.
The year ended with foreclosures and short sales rising but not having a large impact on the market other than inflating the number of active listings. The impact would increase during 2008, but not as much as might be expected and certainly not as much as in some cities around the country. We will talk more about this segment of the market tomorrow as we cover 2008 to date.
There is more that could be written about 2007 in the Tucson Real Estate Market. However, this post is already too long and I’ll leave you with this image which in a way sums up the relationship between buyers and sellers in some segments of the market in 2007.
You Want a Counter Offer Here's Your Counter Offer
