High End Buyers…Where Did They Go?

Riverside, California…Westcoe Realtors…We recently posted a blog about regular sellers, and the special issues facing them today in a world dominated by bank owned properties (see I’m Not a Bank…Can I Still Sell my Home?).  Today, I want to delve deeper into a certain segment of those “regular” sellers…the High Range Seller.  Specifically, where have their buyers gone, and what can they do to sell in our current real estate climate.

 In order to fully understand the answers to the above question, it is imperative that you totally comprehend the changes that have occured to our local real este market in the past couple of years.  To assist you with this, I have supplied a chart below that compares the 1st quarter of 2006 with the 1st quarter of 2008, broken down by price ranges and unit sales.  Please take a look.

                                                1st QUARTER 2006                             1st QUARTER 2008

Price range                      Units Sold         % of sales                        Units Sold             % of sales

$1-$300,000                         52                      8%                                 387                          53%

$300,000-$400,000            243                     39%                                190                          26%

$400,000-$600,000            255                     40%                                120                          17%

$600,000 plus                     80                       13%                                28                            4%

                                       ____                                                       _____

                                   630 total unit sales                                    725 total units sold

This chart represents the total properties that sold in these quarters in the Riverside area.  Now, what does it all mean, and how does it affect our high end sellers?  Well, let us examine some conclusions to be drawn from the changes this data highlights.

FIRST.  The low range sales for 2006 are totally defined differently than the low range for 2008.  In 2006, THERE WAS NO INVENTORY BELOW $300,000…and now look at it.  It is interesting to note that the two lowest catagories for 2006 show a total of 47% of the market sales…as compared to 79% for 2008.

 SECOND.  Conversely speaking, the two highest price catagories for 2006 represented 53% of the total unit sales, as compared to only 21% for 2008.  Not that tough to see that there are far fewer sales in the higher price ranges today as opposed to 2006.

THIRD.  The lower prices of today are represented by the massive number of unit sales in the lowest price catagory in 2008 as compared to 2006.  In 2006, about the only property you could find under $300,000 was a few condos or some seriously messy single family homes.  Today, it’s like Willy Wonka in his Chocolate Factory..take your pick from a huge selection below the $300,000 level. 

FOURTH.  This lower pricing that now exists is the reason that the total unit sales are up from 630 in 2006 to 725 in 2008…a gain of 15%.  This is why, painful as it is, this real estate market correction we are currently experiencing is beneficial in the long run.  It is allowing first time buyers back into the market at a price and monthly payment they can actually afford.

 So…Let’s go back to our original question.  Where are our high-end buyers?  Well, they are here, but they are hiding for a while, and will take a little time to come out and play.  

 Basically, you must understand the ”food chain” as it applies to real estate.  Low range buyers (first time buyers, etc.) start the process.  Those sellers of the low range houses then become the buyers for the mid-range properties…a simple trade-up process…and those sellers of the mid-range homes become the buyers for your high range home.  However, understand not every low-range seller becomes a mid-range buyer, and not every mid-range seller becomes a high-range buyer.  There is some attrition along the way.  Think of it like a pyramid…lots of buyers along the bottom, but as you climb higher, there are fewer and fewer buyers. This is how the real estate market has always worked, no matter what cycle we are in.  Lows feed the mids and mids feed the highs.  But what about now?

 THE PROBLEM NOW IS THAT A LARGE PERCENTAGE OF YOUR LOW RANGE SELLERS ARE BANKS WHO WILL OBVIOUSLY NOT BE TRADING UP.  Therefore, the feeding chain is broken, and that is the problem with our high end market.  We now have so many fewer buyers trading up, and that problem is passed up the food chain.  In essence, when the plankton are not as available, the whales get a little hungry…and the numbers in the chart above totally verify the “thinning” of this market for the whales.  So what do you do as a high range seller?

 Simple…if you find yourself needing to sell in todays market, you need to be incredibly realistic about what you face.  Look at the chart again.  ONLY 4% OF THE SALES IN THE 1ST QUARTER OF 2008 TOOK PLACE IN THE HIGH PRICE RANGE  CATAGORY.  You have a small number of fish in your pond that are looking for your bait…so you better have the most attractive bait around.  That means the condition and price of your home better be the best of what is for sale, or those miniscule high range buyers (28 for the year so far…the 4%) will buy another home that is.  I know this sounds tough, but such is your market at the moment…and tough love is never easy, but generally needed. 

In time, the market will improve when the banks get out of the home ownership business (a business they would only be too happy to leave), but until then, be realistic.  Sorry, but this is the best advice I can give…and the most practical.  Hang in there, and you can always call Westcoe (here comes my plug) for details on your particular home.