Buyer Happiness was Higher in Austin Seller’s Market

What makes Austin real estate buyers happy? The answer may surprise you. What apparently doesn’t make a buyer happy is a rock bottom price at a 4.37% interest rate. If that was the case, there’d be far less buyer angst and hand wringing than there is now in the Austin real estate market. We’d have far fewer buyers in Austin flaking out on home purchase transactions for no good reason.

No, buyers are happiest in a seller’s market, winning a multiple offer bid-up against 5 competing buyers, and paying 10% over market value at 6.25% interest, and happily covering the appraisal shortage with additional cash at closing. This is not a joke, I’m dead serious. The latter 6.25% buyer feels victorious and ebullient about the purchase. The former 4.37% buyer feels like, perhaps, a mistake was made.

Austin buyers were much happier in 2007, at the peak of the market, when they had a lot less to pick from and had to work a lot harder to find a home. Buyer remorse, buyer finickiness, buyer flakiness, and just plain old cold feet existed to a far lesser degree in the harsher buying environment of 2007 than in the buyer’s dream market of today. Don’t believe me? Go ask any production Realtor in Austin. By “production”, I mean, go talk to Realtors who are busy and closing deals every month, like me and Sylvia. Ask listing agents if it’s a lot harder to get deals across the finish line today than 3 years ago, notwithstanding loan impediments, just purely from a buyer emotion standpoint. They’ll tell you it is and they’ll have stories of buyers backing out for frivilous reasons, or, in some cases, no stated reason at all.

This doesn’t make sense, I know. So what’s going on here? Why all the buyer angst?

The problem is too much choice. Imagine you want to buy a widget and there are only two models and two colors – black and white, standard or deluxe. You pick a standard black version, go home and feel pretty happy about your pick. You are satisfied you made a good choice and have no remorse or misgivings.

Now imaging there are more choices, like 10 basic models and a ton of confusing options (sort of like a car) and a rainbow of color combinations. You think long and hard and finally make a choice. At home with your Orange “Standard Plus XP2” model, with the black accent stripe, you were feeling pretty good but suddenly you start wondering if maybe you shouldn’t have gone with the Purple Standard-1 XPa.0 model, which had everything you really needed and was cheaper. Soon you start thinking of returning your widget. Yes, you definitely think you made a mistake and will be returning the widget tomorrow.

The beauty of a Seller’s market, and the reason buyers are happier in a seller’s market, is they are spared the curses of ample time and ample choice. You want a 2200 sqft 1-store in SW Austin for under $235K that feeds into the best schools?… and there are 3 Active listings and 10 Pendings, and the agent for 1 of the Actives, which just came on the market today, calls back to say he already has multiple offers and will be presenting to the owner tomorrow at you better hurry.

Guess what? The buyer who gets that (hypothetical) house in multiple offers for over list price is more pleased with that purchase than the lemon-faced buyer of today who’s sulking at closing because she locked in a 4.5% interest rate and could have done better by waiting.

It’s enough to make an agent want to quit working with buyer’s in a buyer’s market, and I personally have. I’m taking the rest of the year off from buyers, except for referrals and repeat customers. A lot of todays buyers need a therapist, not a Realtor. The deals are just too good, too numerous and the interest rates too low for them to find true happiness in a market like this. It’s really quite astounding if you think about it.

And now I have to confess that I too am guilty of this. We paid 4.75% interest on our new loan for the house we bought last month. And now I feel like a real Dummy. How could I have been so stupid? 4.75% interest is high. I’m not kidding. I actually sprawled out on the couch one day, stared at the ceiling, back of my hand on my forehead, and felt regretful. I wondered if it might make sense to refinance already, maybe to a 15 year loan for 3.75%. Am I crazy? No, I’m normal. I understand these emotions. But I didn’t flake out on my deal because of it.

We’re all human. A byproduct of being human seems to be the counter-intuitive condition of decreasing gratitude relative to the goodness life gives us. The better off we are, the worse we feel sometimes. And sometimes we can’t help it. I use to joke with a melancholic friend of mine that if a $20 bill blew down the street and landed on his shoe, he’d pick it up and complain that it wasn’t a $100. That’s how buyers are in Austin today.

How to cure this “good buyer market” blues?
Interest rates and prices need to start rising, and continue rising, slowly, for 5 years. The train needs to leave the 4% station, start chuggin’ through the 5s, and keep on going. The economy needs to improve so that uncertainty about home values can dissipate. Then buyers can pile onto said train, congregate on the rear platform of the caboose, and scream “later losers” to the bystanders who are missing the train because they’re still afraid to get on. And then, those buyers who made a decision and followed through will feel good about themselves, knowing that they bought in a rising market and that others are missing out on the “good move” they made.

To be fair, I’m being somewhat tongue-in-cheek, but just barely. There are some very pleased buyers out there who are happy with what they’ve found, and the interest rates on their new loans. Of this I am certain as we’ve helped many such buyers this year. I’m not talking about you guys.

But as I see it right now, (look out, shameless unoriginal Realtor cliché coming…), there has never been a better time to buy real estate in Austin TX. Sorry, that’s just the best way to say it. This truth won’t be fully acknowledged until it becomes a historical fact. Meanwhile, let the hand wringing and dithering continue, and let those of us who bought at 4.75% interest keep mourning over how high that seems and how we could have done better if only we had just waited longer.From these we can be sure that Buyer Happiness was Higher in Austin Seller’s Market.

15 thoughts on “Buyer Happiness was Higher in Austin Seller’s Market”

  1. Ah Steve, you are what makes everyone sign at the ridiculousness of realtors. You and all realtors have been saying it is the best time to buy real estate for years, even through the downturn. There is always some reason, and you guys are always trying to call the bottom without looking at the larger macro economic picture. When prices come down 10% from the peak, realtors say “what a bargain!”, same when they continue to fall 20%, 30%, etc in various markets. Then when home prices look to be flat to down (as is likely with prolonged high unemployment), you say, “but hey, mortgage rates are low!” It is all a scam and a ponzi scheme, and real estate agents just lick their chops – the higher prices are and the more churn means more fees from the ARBITRARY 6% custom paid to sell/buy a home. I’d love to see home prices flatten and people move less – it would cost them less in transaction fees and greatly reduce the # of uneducated idiots who just get a real estate license and collect money (excluding you of course). Shame on your industry, along with the mortgage industry for piping into everyone’s heads that real estate is ALWAYS a good buy, no matter the external indicators. But, you can’t be completely blamed – human nature is, as you say, greedy, and people all do stupid things thinking they can make money without having to actually work. Kind of like real estate agents…:)

  2. hi, Steve:
    back in the days I was schilling computers and servers, it didn’t take me long to learn that the more options you give to consumers, the longer it takes them to make a decision and the more painful the process is… And the person who wants to see “All of the options” is the one who’s going to buy the least expensive one in the end, but steal the most of your time before and after the sale.
    I know: another cynical whine… but I think you hit the psychological mindset of the consumer on the head. Too many options makes us mushy headed…

  3. Ah Pete, if only you could live one week in my life and do the “work” I encounter on a daily basis. I’m happy to change shoes with you one day. You’re so mislead because you only know a micro inch on what happens daily in the real estate world. I’m really intrigued to know you’re idea of when the best time is to buy a home in Austin?

  4. It is somewhat rational for buyers to be careful given the continued stream of economic news that real estate has further to fall – I am not sure that is true of Austin, but it is difficult to separate out the local market from the broader news. Buyers also are conditioned to think in bad economic times they deserve a steal — they all know someone who knows someone who got a steal on some piece of property. At the water cooler, you don’t want to look like you only got a good deal on home. Combine these with too many options, and it is a recipe for a slow market.

  5. To guys like Pete, if you don’t trust the realtors and don’t think prices are at their lowest, then don’t go and waste agents’ time looking all over the place just to change your mind later. They’re abusing the fact that there’s no charge up front, and those buyers who actually go through with it end up paying for it. The only reason it’s 6% and not 2% is that agents have to make up on the sales the time they waste with those who abuse the system.

    I have noticed a lot of listings withdrawn or expired lately. Some days there are a lot more of those than new ones. Every seller who doesn’t need to sell now and isn’t willing to drop the price, should take their home off the market instead of trying to see if some sucker will overpay. This will quickly teach buyers that the market is at the bottom.

  6. @Pete,
    I’ve been hearing the phrase ‘Right now is a great time to buy’ since I can remember!
    It’s always a good time to buy apparently.
    People were ‘happy’ during the peak because everyone thought that housing always went up… people thought they were going to make money 3 or 5 years down the road… However, all those ideas were proven wrong during the downturn; a lot of people are underwater, so housing doesn’t seem such a great deal.

  7. Hi Pete,

    Realtors definitely have a problem conveying the value proposition, espcially when most consumers, yourself being an example, ignore 1) the cost of doing business and 2) uncompensated effort.

    The average Realtor, based on a huge survey done by Keller Williams, nets 43% of gross commission earnings after expenses. So, the “ARBITRARY 6%” you quote above would actually be 2.58% 1.29% (43% of the 3% side of the transaction) after expenses. From that amount, the Realtor must still pay income taxes and health insurance costs.

    The other issue, as alluded to above by other comments, is the uncompensated effort expended on buyers. It costs absolutely nothing to have a professional Realtor help you decide if you really want to or need to buy a home, and many consumers avail themselves of this process by having a Realtor show them property, only to decide later that it’s really not a good time for them.

    Also, the costs of an unsuccessful sales attempt are fully absorbed by the real estate industry and it’s agents. Expired sellers don’t get billed for the staging, virtual tours, MLS fees, etc. or the time spent.

    That’s ok, and that’s how the system is structured. But the consumer can’t gladly accept the “free” side of things and then complain about the costs of selling. There is a disconnect in the perceived cost of perfoming a successful transaction and the actual costs of remaining in business to be available to perform the transaction.


  8. Time Magazine Cover 9/6/2010 “Rethinking Homeownership: Why owning a Home may no longer make economic sense.” Perhaps a signal of the bottom?
    I personally belive that any loan owned or insured by Freddie or Fannie, ie. the USA should be allowed to have a lowcost streamlined refinance at 4.5% regardless of equity, credit score, whatever. Bill Gross advocates this or something similar. The freed up money would be spent and thus stimulate the economy (or saved for retirement which would aslo be good.) Only for taxpayers though!

  9. What is a bargain? A steal? A rip off?

    Value is relative. Value is also a matter of perception.

    I’ve lived in Austin since 1985. I still kick myself now for not buying a house I was looking at in the Bouldin Creek neighborhood back in 1992. I expect that 10 years from now, people will be kicking themselves for not buying real estate in Austin in the softest market in 23 years, and the best interest rate since I was a baby in the late sixties.

    Actually, the interest rate is now lower than any seen by anyone under 60 years old. Are you under 60? Do you ever remember having an opportunity to buy a house at 4.5%? I wish rates would leap up 2% so that people would start talking about 2010 as the “good ol’ days.”

    I’m selling a house in NW Austin. It’s on the 11th fairway of a beautiful golf course.

    I’m selling because of a divorce, and this 4-3 (3,200 sq ft.) house is too big for one person.

    The Travis County appraisal in 2008 was $380k; knocked down to $350k in 2009.

    I listed at $325k for a quick sale.

    And still buyers complain about small things… small as in complaining about a spare room formerly used as a playroom not having carpet.

    This blog entry by Steve Crossland (and for the record, I’ve never heard of Steve before today)… Steve has nailed it on the head – not just about real estate, but about how people perceive happiness and their decisions.

    In fact, Steve’s analysis jives with many studies about perceived happiness, which concludes that people feel anxious about having too many choices, and also studies that show that people compare well being against expectations rather than actual well being.

    We live in better conditions than 99.999% of all humans who have ever existed, and yet we whine, “My electric bill is too high.”

    So Steve, listen… those people who criticize you are obviously not selling a house, and obviously don’t know the amazing inventory that is out there right now. If I weren’t in the middle of a divorce, I’d be buying. In fact, as soon as I sell my house, I WILL be buying… as many properties as I can.

  10. What I’ve never understood is why some people go and waste hours of their time and agent’s time looking at homes when they’re not even sure if they’ll buy.

    There are plenty of pictures and prices online to make a decision if something in your price range is out there. You can monitor the market for a year over the internet to see what sells and what doesn’t. What could you possibly see in person inside the homes to change your mind?

  11. Sara – Thanks, Interesting article. Might be good material for a separate blog article.
    Marcos – thanks for sharing your experience and perspective,

    Rick, having worked with a lot of out of state buyers in the past, I came to know for certain that once they actually came to Austin and toured homes, they would invariably hate at least half the homes that were their online favorites. There really is no substitute for going inside homes. I use to add back homes to a buyer’s list that they had scratched and say “no, you need to see this one. You’re going to like it based on what you’re telling me”, and they would like it.

    So yes, I think some culling and picking can be done online, but the reality of it is, with most actual buyers, that the physically toured “favorites list” will have a much smaller overlap with the initial “online” favorites list than one might imagine.


  12. I wonder if people have a psychological need to buy at the exact bottom of the market. When prices are going up everything is fine. But in times like today even though properties are cheap and interest rates are low people are upset if the miss the bottom, even if overall they get a good deal. But buying at the exact bottom is more luck than skill in a way. The market is not logical. And I say all that but I am guilty as well. I had the same thought process as Steve the “did I get the lowest interest rates, could it fall more”.

  13. Steve
    You hit the nail on the head. I tell people all the time, especially first time buyers, that there has not been this selection at these prices and locations in many years–and interest rates haven’t been lower in the average buyer’s lifetime. I also remind them that in the past 20 years, each dip in Austin was followed by a pronounced updraft in prices in the following years. I have been in the business since the 80’s. I remember what a real meltdown looks like, and this isn’t it. And looking back on that decade of real estate calamity, it turns out it was a ridiculously incredibly smart time to buy.
    People still want to live in Austin and these times will pass. The folks who lock in these low rates and moderated prices will be the winners.

  14. Hi Jeff,

    > I have been in the business since the 80′s. I remember what a real meltdown looks like, and this isn’t it. And looking back on that decade of real estate calamity, it turns out it was a ridiculously incredibly smart time to buy.

    Agreed. I sold a house to a guy in 1995 who had come to Austin from New York in the late 1980s and bought over 100 houses with family money at an average of $15K to $45K per house, all in areas that would be considered “Central” today. He said the locals were like deer in the headlights. Nobody wanting to touch real estate in Austin, and everyone was broke after the oil bust and S&L meltdown. Also, the tax law changes of 1986 made investing in rental suddenly unfavorable for many higher income investors, and many of them then just decided to let their apartments and rental portfolios go into foreclosure because the values had plummeted. Very similar to the “strategic defaults” happening in some former bubble areas today.

    But he saw an opportunity and in less than 10 years had made a killing in equity appreciation and reselling most of the portfolio. The house he was buying from me was a cash purchase gift for his sister.

    I asked if anyone told him he was crazy for buying a bunch of real estate in Austin and he said “yes”, basically everyone told him he was crazy. I don’t think todays opportunities are as ripe as back then, but the mindset of the doom and gloomers is similar.


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