Buying a new home seems to be such a risky proposition these days that people are actually likening it to purchasing junk bonds or penny stocks. Too many people are caught in the "I don't want to make a stupid investment"mentality to actually examine the reasons why owning your own home is such a fundamental part of the American dream. If you watch the news you are led to believe that the folks at Enron got out of the energy business just in time to enter the home building business.
As a twenty year veteran of the American dream industry I can tell you that we are suffering a crisis of confidence and not an end to the dream. Most people I encounter, both prospective buyers and people in my social circle, feel that the economics are now more important than the emotion. That change in the buying process is certainly understandable but it is likely not sustainable.
Since I began my sales career, one of the axioms of new home sales was "justify with logic...close on emotions". For most people the decision to purchase a new home is more than an economic decision. It is usually a discretionary choice that we justify with a logical rationale. Does anyone really need a 4000 square foot home for a family of four? Of course not. But our homes are often a projection of our own self-image. Perhaps this industry correction will change the parameters but it will not change our desire for better homes, neighborhoods, and schools for our children.
When you examine what prospective buyers are saying these days you hear the same comments and objections. "It's not a good time." "I am afraid." "It's gonna get worse." "I don't want to make a bad decision." And the most insidious..."How big is your discount?" Are they really looking to buy their family home from the "clearance rack"? The answer is no. They are looking for reassurance and perhaps even some gentle persuasion. Given what we have witnessed in the past two years, who could blame them?
Maybe 2008 will be the beginning of a change. Maybe people will finally say, "It is time". Maybe the sales axiom will change this year..."justify with emotion and close on logic." The prospective buyers will need to be reminded of the unique non-economic/emotional benefits of purchasing a new home. The easy battle will be waged as skeptical buyers attempt to time the market. Simply put, there has not been a better time to purchase a new home in the past twenty plus years. Interest rates are at historically low levels. Prices have adjusted down almost 20% in some markets. There remains a year's worth of unsold inventory in most markets. Builders are fighting for each sale with amenities-enticements-incentives.
If a buyer has sufficient income, good credit, a modest down payment, and no home to sell...this is the buyer's market of all buyer's markets. Now is the time. My Econ 101 professor put it this way, "While markets can act irrationally in the short term. Over time, all free markets will act rationally. Consumers will know a good deal when they see one." My prediction is simply this: Change is on the horizon. The buyers will be back. Pent-up demand will lead to some rational buying behavior in 2008. We will not be seeing a return to the output levels of 2005 or perhaps even 1995 but we will see the Real Estate market shake off the standing eight count and return to the fight.
Owning a good home in a good neighborhood where your kids can go to a good school is still the American dream. While double digit growth in appreciation, homes that sell above list price, bidding wars, and speculative buyers are "so 2005"...
Most people will feel better about chasing their American dream in 2008.
