As I travel across the country, the words I'm starting to hear are "We have a shortage of inventory here.” This is not isolated to any particular area as it's happening almost everywhere.
Recently, I was asked to speak at an office meeting. The sales manager let me sit in on the first 15 minutes where he covered the previous month's production numbers and addressed how the originators were faring compared to their goals. Every one of them was short of achieving their goal. Now store that thought until I finish my next part.
As I am delivering my presentation, I begin to discuss our Path2Buy Program and the research I did when interviewing 318 renters, how 317 of them said they would want to own a home … just not right now.
Then, I talked about how our program helps get renters off of the sidelines. When I got to the Q&A portion, a very respectful gentleman challenged my information and said, "The market here is very hot right now, but there is just a shortage of inventory.” I said with all due respect, if the market is so hot, how come no one made their goal last month? Silence filled the room. I then explained what I call "The False Positive.” The market appears to be hot because the amount of buyers exceed the number of sellers. The issue is inventory. Sellers aren't putting their houses on the market for a couple of reasons:
1. They don't have enough equity to move up … just yet. Even if they wanted to move up, they cannot get enough cash out of their existing house to put down on the next house, so they are staying put.
2. They're afraid to take on more debt due to the uncertainty of the economy in general. They're still gun shy after the drop in values from a few years back.
So what happens to this potential first-time homebuyer is they get frustrated looking at houses, making numerous offers and coming up empty, in turn, driving them back to the sidelines to continue to rent. The first time I saw this was in the Phoenix market when the renter was competing with institutional buyers, like Blackstone, that were making offers of 105 percent of list with no contingencies. As an originator, you used to count on your pre-approved buyers being the ones who were "on deck" to write a contract. Today, it's a different world. The advice I can give any originator is to change your way of thinking … start thinking about a longer incubation time than what you're used to. Stay in front of this potential buyer and keep in touch. Make sure you have a system to do this.
In our Path2Buy system, the incubation strategy is one of the cornerstones of its success. My research shows that the bitter taste of renting will re-appear a few months down the road and the originators who had a system to incubate will reap the benefits of the changing market. I learned a long time ago that whether the reason is saving for a downpayment or waiting for inventory, the renter will eventually buy their first home, the only question is from whom and where will they get their mortgage.
Tom Ward is founder of the Path2Buy Homeownership Coaching Program (Path2Buy.com). He may be reached by phone at (847) 340-4295 or e-mail [email protected]