Buyer Rationalization

In the past several months, we’ve seen buyers disappearing at a significant rate.  As already mentioned, sales are down 30%-50% year-over-year for the same monthly periods. 

Many who are employed by the Debt Dealer Syndicate (DDS) will attest the reason that demand has contracted is that “buyers are taking their time to make a decision on buying.”  Somehow, that’s a counter-intuitive approach to this market meltdown.  The DDS will always tell an individual that the best time to buy is always now.  It’s part of their job, an unwritten code of honor within their collective.  But if you take some time to analyze that particular reason, then it becomes contradicting in the same breath.  With low mortgage rates and prices in a “balanced market” and “stabilizing” one would think the entry point into the real estate market would be best served immediately.  No bidding wars to speak of anymore.  No lining up at 5am in the morning to be first in line (before all the speculators) to buy the condo that you have always wanted.  One would suggest this is the easiest time to enter into the market.  Remember, the Alberta economy is the “hottest in the world.”  We also have the oil-sands.  Demand SHOULD BE healthy.  Sales numbers SHOULD BE healthier.  Prices are “stabilizing” and the market atmosphere is much more relaxed than ever.  Buying should be easier than ever. 

So why isn’t anyone buying?

Consumer psychology and confidence.  As a consumer, we all have an innate fail-safe instinct to find the best deal in the marketplace.  This value driven consumerism has been absent over the last two years.  Neglected because people fell prey to the cunning marketing machine of the DDS.  But reality has finally set in again.  Buyers are fed up!  They are realizing the prices of Calgary properties today are hyper-valuated to unrealistic proportions.  These high priced properties are no longer a good deal, not worthy of spending their hard earned money on.  Meanwhile, personal savings rates have plunged from 10% in 1990, when households saved about $7,500 of their annual incomes, to just $1,000 or 1%. Of more importance, there is the negative economic reality the world is in right now.  In Alberta, more pessimist cracks are showing each day in the optimistic outlook cast on this province over the last two years.  Nearly half of Albertans polled today would hold off buying a new home.  With the US likely in a recession already and the potential of a slowdown in the Candian economy, consumer confidence is declining.  The abatement of consumer confidence is then further propagated by Main-Stream-Media (MSM).  For example, in Vancouver (where the bubble has prolonged many years as a result of foreign investment), the declining sales due to low consumer confidence is stalling their golden real estate market.  Here is a short Global News story about the recent stalling of the Vancouver real estate market.  A revelation in the video comes when a realtor with over 36 years of experience admits on camera that some of the properties are worth around $200,000-$300,000 less than their listing price.  I wonder which realtor in Calgary would dare admit that current properties are overvalued by (X)% or $(X).  It would make for an interesting Mario Toneguzzi article. 

Coupling low consumer confidence and value consumerism, making the largest purchase of one’s life would simply not be the smartest or best thing to do right now in the face of uncertainty.  A large percentage of buyers are becoming more rational and remaining on the sidelines to see how the market will play out.  It should be an interesting springtime.

To reach market rationalization and equilibrium, the ball is now in the sellers’ court.