The Floating Real Estate Buyer

Politics and Real estate

For a long time now it has been recognized that political elections are decided by a small group of voters who are generally undecided on who they will vote for in the elections. There are the other voters that will always vote for their party and will not stray from historical alliances and these make up the core of the votes cast for each party. The ones that help push the winning party over the finish line are the floating voters who could vote for either party...or neither.

The Floating Real Estate Buyer

Real estate, and the cycle of buyers markets and sellers markets, has a very similar analogy. The term "floating" in the real estate sense refers to the home buyer that does not have to move. They maybe considering moving because:

• they have the extra income to be able to afford to spend more on a home
• they have a change of social obligations or connections, that constantly finds them traveling to another area where they feel they may as well move as they are always there.
• they feel their home has become outdated and they want to enjoy the feel and design of a newer home
• they want to move out of a subdivision and live further out in the country with some acreage
• the y want to leave the remoteness of the country and move into a subdivision
• the family size may be expanding or contracting
• a new job means a different commute that is getting a little tiring
• a new school is not what the parents want so they want to move to a better school district
• parents are getting older and need support
• baby is coming and want to be closer to the grandparents for support
• etc etc

There are hundred and hundred of reasons why people want to move and the combination of these reasons eventually add up to a point where the home owner has to move. This may be an emotional or financial decision but at some point they decide that its time to go!

The balance of the decision to move is greatly impacted by the prevailing economic conditions. These may be actual and perceived. If the home owner feels that the real estate market is in a state of negative flux and the media is seen to supporting this then the home owner will adopt a wait and see attitude.

Present Market Conditions

At the present time the news of the sub prime mortgage collapse, the number of mortgage companies that are tightening their credit application tolerances, the talk of recession are all being absorbed by the floating buyer as reasons to stay put and make the best of what they currently have. When the "F.B." sees the reports in the media of home prices falling and the days on the market increasing then why would they considering selling their home and moving within the same market.

The home owner will take the view that if he does put his home on the market it will take a long time to sell and the sales price will be no where near what they would like to achieve and so they won't be able to afford to move up to the next step in the housing market ladder.*  This means that the FB will just accept that they are not moving or look to improving their current home to try and achieve some of the some of the goals they were after.

Reduced Motivation To Sell

As this pool of floating buyers refrains from jumping into the market the result is that the market starts to revolve around the buyers and sellers that have to move. As other floating buyers see that there home is not attracting buyers they have two choices...reduce the price or remove themselves from the market. This in turn reduces the number of buyers which decreases the demand for homes which then leads to the home sellers that have to sell to having to reduce their sales price. As the sales prices continue to fall, as does the desire of the more marginal floating buyers desire to sell. This again reduces the pool of buyers until we get down to the sellers and buyers who have to move.

This gradual decline in the involvement of the floating buyer leads to a change in the mindset of the buyer. As the days on the market increases and the inventory starts to increase the buyer's state of mind changes to more of a wait and see attitude. If they do find a home that they want to buy, and they don't have a home to sell, they will continue to look at homes just in case the perfect home is just around the corner. This perpetuates the extension of the days on the market which leads to the motivated sellers resorting to more and more attempts to attract the buyers to their home. In the end the biggest attraction is always the asking price. Reducing the price to a point where they buyer perceives it to be good value or a "steal" will only solidify the downward spiral of house values.

As the real estate values are pushed further down the motivation of the seller begins to change and more and more will fall into the floating buyer category as they decide that it's not worth taking the financial hit and that they don't really need to move!

Motivated Buyers and Sellers

Now we are left with only the really motivated buyers and sellers. The external market forces now start to kick in. In an attempt to kick start the housing market the buyers will start to be tempted by the reduction of financing costs, the availability of credit, the improvement in financial incentives from employers to make people move, tax considerations and more importantly the perception by the buyer that the time is right to make a killing in the real estate market. The floating buyer that does not have a home to sell or any other financial or time contingencies is in the strongest position of all the buyers now. They can write an offer that is so strong and appealing to the seller that they will take the low ball offer just to get out of the double mortgage payments or to be able to accept the out of state job.

The Market Bottoms Out

As the real estate prices become more and more attractive the floating buyers begin to start entering the market as buyers only. They do not want to list their home just yet as they feel they market may not yet have bottomed out. They will add to the pool of buyers which at some point will start to increase the demand for homes. As the homes start to sell because of the reduced market values, low interest rates and investor mentality the demand for homes starts to increase. At this point the pendulum starts to swing slowly but surely the other way back to a sellers market and the process starts all over again!

*(In actual fact, if they are moving within the same real estate market, the % reduction the have to give on their home will likely be reflected in the sales price reduction of the home they buy.)

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