Buyers buy homes because they expect prices to rise in the future, right?

It would seem that most home buyers and sellers make their decisions to buy or sell based on whether they believe prices will rise or fall in the future.

But that’s not really true, at least not lately in San Clemente.

The fact is that almost one quarter of local home sellers these days are banks that have taken back homes in foreclosure. These banks want to sell these homes in short order at whatever price they can get. They are unconcerned with price forecasts.

Additionally, more than one quarter of current sellers are owners who are trying to avoid foreclosure by achieving a short sale (selling for less than owed with bank approval). Short sellers have no equity left and now have an immediate goal to sell at whatever price the bank will approve–whether they believe prices will rise or fall in the future.

What’s left is referred to as the traditional, standard or equity market. Making up almost two thirds of San Clemente listings, but only half of closed sales these days, this market is full of sellers with very diverse goals. They all have equity to protect, but not all of them are concerned with market forecasts.

Most traditional sellers are selling because they have a change in family status.  They feel they “have to sell” because of a new job, retirement, marriage, divorce, birth, death, children moving out, children moving back, etc. They usually sell within a reasonable timeframe, but will not “give their property away.”

Some of these sellers care about market predictions, but most plan to buy another home in short order.  So market price forecasts become somewhat irrelevant for them. 

My guess is that fewer than one quarter of San Clemente home sellers these days have the true luxury to not sell. These sellers may try for a few months, and then take their house off the market if they don’t get their “price.”

And most of them don’t get their “price” these days. This is why equity sellers comprise almost two thirds of listings but only half of all local sales. They care about market forecasts and will hold out if they think prices are headed higher.  They will also become more motivated to sell if they believe prices will drop in the future.

And what about buyers? Do they care about market forecasts?

Many buyers will buy only if they believe prices are headed up, but not all.  Some buyers feel compelled to buy regardless of market forecasts. They are having a change in family status, just as sellers.

Others buy because they have to complete a “1031” exchange of income property, or they want to take advantage of lower property taxes according to Proposition 60 or 90, etc.

First time buyers often just want a house of their own. They don’t care about short term price forecasts. Instead they tend to compare their after-tax monthly cost of buying with the monthly cost of renting.

Pure real estate investors will generally not buy if they think prices are headed down. Many pure investors are driven these days by wanting to protect their wealth from eventual rampant inflation.

And if they didn’t believe prices would be higher in three or four years, they would probably get out of the business of real estate investment.

For more of the latest market news and statistics on San Clemente real estate, visit my blog or MCotter.com.