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Thursday, June 17, 2010

The pendulum of housing keeps on swinging

When sub-prime mortgages were re-setting in 2006 and 2007, buyers called the shots while sellers with few options took whatever they could get for their homes. Then, as more buyers jumped into the mix, real estate sellers became good at generating “bidding wars” on for-sale houses, often turning the deal-of-a-lifetime into a purchase that was more expensive than expected for the winning party.

As incentives ran out in April, it seems that May brought the pendulum of bargaining power back to the buyer, according to this story in the New York Times, which suggests that many “deals” fell apart at the last minute last month. That’s important to the housing market. But it creates a ripple effect that is felt throughout the greater economy, as moving into a new home can be the precipitating factor that causes the consumer to spend on home improvement, home furnishings, and a host of other items.

Such dramatic swings in the real estate market can even restrain the progress of the apparent recovery. As a story from today’s Wall Street Journal indicates, the industrial sector seems to be trying to lead the economy into positive territory… but under the drag of a housing market that seems unready to cooperate. (The inset graph from the WSJ story is particularly telling.)

Implications: I’m thinking about a couple of things this morning, in response to these housing issues.

First, when people move, they are moved to a variety of purchasing actions. If yours is a business that indirectly relies on relocation as a stimulus for buying, have you maximized your marketing with the folks who have already moved within the past three years or so? (Lots of people bought when there were first-time homebuyer incentives, but I don’t think I ever saw a furniture or appliance store create their own “First time home furnishings buyer” stimulus plan. It might make for a good sale, at least among those people expecting a rebate after purchasing their home.)

Second, I believe home ownership is still the great American dream. But buyers are going into the process fully awake… and ready to hold off until sellers meet their expectations.

Regardless of what you sell, do you know, for sure, what the expectations of your buyers are?

Mike Anderson

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