What’s behind buyers’ increased sense of urgency? A snapshot of buy-side psychology today!

“Times they are-a-changin”, and nowhere can this be seen more than the shifting psychology of NYC buyers.  The last 6 months are pointing to increased buyer anxiety that stems from several places:

–          Inventory frustration:  clearly supply and demand have shifted, and buyers have been discouraged by the limited fresh listings coming on the market.  Particularly in the 2+ bedroom segment, inventory turnover seems to have picked up significantly, spreading from the $1.2M -$1.5M segment into the higher ranks of $1.6M-$1.8M.  Further, buyers are now starting to realize that medium-term inventory will be truncated by the very limited number of new developments coming to market. After all, it may well be a couple of years before we see new supply coming online.

–          Lost bids:  the phrase “bidding wars” has been way overused as of late, but the dynamic still holds water.  Buyers have had to adjust to the new reality of shrinking spreads between asking and closing prices as they see their negotiation power shrink month by month.  For the most part, offers nowadays have to be well within the 10% under-ask range, while those over 15% are just not taken seriously. Moreover, many buyers have found themselves in the uncomfortable situation of bidding against other buyers, anecdotally in some cases, beyond the original asking price of the property.  Once you’ve had your heart set on one apartment only to lose it, your behavior the next time around will likely have more conviction.

–          Fatigue: those buyers who have been in the market for the last 6-12 months hoping for another drop down in prices (based upon multiple media reports) have been disappointed to be sure.  After seeing 30, 40, or more than 50 apartments during this time, do you blame them for feeling absolutely exhausted?  In the meantime, contracts signed are up, closings are up, bidding wars are up, while new inventory is coming online slower than it’s being absorbed. With higher interest rates looming on the horizon, many wonder how much more they can take before pulling the trigger.

–          Macro indicators:  an arguably improving economic picture, coupled with a robust stock market, is providing a rosier backdrop than we’ve seen in a few years.  Many buyers are now outpacing sellers in their sentiment that the worst is most definitely behind us.  This informal confidence index is a lagging indicator, of course, as statistics pointed to us having turned the corner a while back, but there’s a big difference between hearing it intellectually and feeling it emotionally.

All of these dynamics are adding fuel to the observation that more and more buyers are reconnecting emotionally to the process of buying a home.  2009 was marked by the investment-oriented, value-driven buyer, looking to justify every cent of every dollar spent on the purchase of a home. 

2010 seems to present a different story-line.  Buyers are looking to the purchase as an acquisition of a new home versus merely a transaction, a connection to its personality and “feel” rather than purely an exchange of goods.   Today’s buyers have more specific wants and wishes that go beyond stale new development characteristics. They are driven less by a “bargain of the month” mindset, and more by their actual needs and wants, willing to pay slightly more money for an apartment they love.

This shouldn’t be such a surprise, really.  A majority of true bargain hunters have either purchased or rethought their position of purchasing altogether.  Left in the market are those buyers with more traditional, fundamental mindsets.  If 2009 was the year of the value-buyer, and 2010 marks the return to normalcy, anyone venture to guess what 2011 may bring?