Recognizing The Buyer's Market "Sweet Spot"

Posted by Sean Matyja on Wednesday, February 15th, 2012 at 5:00pm.

Real Estate Market Fundamentals - Recognizing The Buyer's Market "Sweet Spot"

Nobody Buys in A Buyers Market!
Why is it that when we are in a Seller's Market, buyers line up and compete with each other to buy with multiple offers trying to out bid each other, but once we are finally in a Buyer's Market, the buyers won't buy? In the Buyer's Market everyone is frozen with fear. They are watching and waiting, and watching and waiting for some signal that we are in the absolute bottom point of the bottom of the market. But guess what, no one rings a bell once we hit the bottom. There is no memo sent out to potential buyers, there is no breaking news forecast, there is no alarm sounding off. So how do buyers know when we are truly at the bottom of the bottom?

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Timing the Peak
We all know what a Seller's Market looks like because we were just there a few years ago. We all participated in it and remember it well. This last Seller's Market was probably one of the biggest and most impactful Seller's Markets in history, for the U.S. and also here in Park City. We can all easily recall how it played out because we now have the benefit of the experience of being there. The key to recognizing the peak, we now know of, is that it is in our past. We can see the peak that occurred, because we then came down from it. Now we can easily look back and see it. You'll remember, that when we were at the peak, almost no one had the foresight that we were at the peak. Many people thought the market would just keep going on up. But of course it didn't, the market eventually peaked, and then started its decline back down. Nobody rang a bell to signal the peak. And we did not know we hit that peak until we were working down and finally had enough time, and data, to illustrate that we in fact did pass the peak of that very hot Seller's Market.

The same is true when we are in a Buyer's Market, as we are now currently in. If you recall how we just discussed the Seller's Market, when you're in it, it is very difficult to pinpoint exactly at what point you are at; such as nearing the peak, at the peak, or passed the peak? For our current Buyer's Market, we are trying to figure out if we are heading to the bottom, at the bottom, or passed the bottom. Why is it that Buyers do not buy once in a favorable Buyer's Market?… They are waiting for evidence that we are truly at the bottom, so they can be sure they are getting the absolute best deal. The problem is that recognizing the absolute bottom is difficult while you're somewhere in it.

The Sweet Spot
But what if the buyers could look at it all in a slightly different way. Instead of trying to pinpoint the exact absolute bottom of the market, which is nearly impossible to do, why not try to make the purchase somewhere near the bottom. We can much easier calculate or attempt to recognize the segment of the Buyer's Market where we know we are somewhere near, at or past the bottom. This segment of the Buyer's Market is what we call the Buyer's Market "Sweet Spot". At the end of the day, if a buyer makes a purchase anywhere in this timeframe, or this segment of the trending market, that buyer has hit a "home run".

So how do we successfully predict, calculate, or recognize when the trending market hits the "Sweet Spot"? There are a few signs to help us figure out where the moving and changing market is at. We can identify a few key factors to help us define a beginning, middle and end of the "Sweet Spot". First to identify if you're at the lowest point of the Buyer's Market (Point B on the above Market Trend graph) you must identify that we have passed Point A, and will be heading to Point C. So lets look at each point and how to identify them.

Point A:
- Number of All Distressed Properties reaching new highs
- Prices declining steadily in all neighborhoods
- Activity now increasing strongly in some neighborhoods

With an abundance of Short Sales, Notice of Defaults (NOD's) and Foreclosures and Bank Owned / REO properties, pricing in all neighborhoods is driven down to new lows. Now that the pricing is finally down significantly, the leading buyers start coming back and they start buying, mostly cash deals. Once a few start, more follow and there might even be a buying frenzy in the areas that went into the downfall first.

In our Park City Real Estate Market, this is exactly what we saw in Empire Pass Deer Valley, and in Promontory. We have seen the signs of Point A. We have passed Point A.

Point B:
- Distressed Properties - Number of NOD's decreasing
- Prices still declining in many neighborhoods, but starting to increase in others
- Activity now increasing strongly in most neighborhoods

The distressed properties continue, but less attention on Short Sales and more focus on the Bank Owned / REO properties where a quick cash deal can be made. Pricing is still declining in many neighborhoods, but in some they have reached their bottom. In fact in some it may be to late - the best deals have come and gone. For the overly cautious buyers who have been watching and waiting, they may have watched and waited too long, and missed the best opportunities. At this point the good properties that do come up go very fast. The NOD's have now been decreasing steadily, so at this point the market can expect to start also seeing a decrease in foreclosures. The inventory is shrinking, and the "junk" is getting cleared out, making way for new properties to bump pricing up finally.

In our Park City Real Estate Market we are now seeing this in Promontory, Empire Pass, The Colony and Pinebrook. We'll see it in more neighborhoods very soon. This is Point B, and as of today, February 15th, this is where we are at. Look at the signs, the bottom everyone has been waiting for is here.

Point C:
- Distressed Properties - Number of NOD's down, foreclosures down
- Prices now increasing in most market areas
- Activity still steadily strong in most neighborhoods

Now that the NOD's are way down, the forecast for foreclosures is down and soon we'll see less Bank Owned / REO properties. With the inventory shrinking, and cleaning up, sellers can finally ask a little more again for the good properties. These good properties will start selling again, at higher prices, bringing the overall median and average sales prices back up, which in turn will allow people to ask a little more for the next properties, and so on, and so on. The buyers who have come to the party late will have to pay a bit more to get the property they want. But a little more is still better than a lot more, which is the direction the market is now headed.

In our Park City Real Estate Market, this is where we are headed, and it may not be too far away.

Take-Away Message
In reality, buying anywhere in the Buyer's Market "Sweet Spot" is a big win. Trying to pinpoint the absolute bottom is just too difficult, and you'll over analyze the situation and talk yourself right out of a good opportunity. Decide what is most important to you, buy the right property for you and your family, the deal is there, the time is now, you'll be glad you did it once you do. None of us are getting any younger. If you wait another year to buy prices will probably be higher, interest rates will probably be higher, and you and your family will be one year older when you do.

Sean Matyja - Realtor® / Associate Broker
Mobile: (435) 901-2158 | Email: sean@enjoyparkcity.com 

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