Market Times and Latent Demand – Waiting for Black Friday

Here I go, mixing my metaphors again!

We were discussing average market times with a seller yesterday. In any market, setting reasonable expectations is key when preparing a client for the process of listing and selling a home. And in any market, this is always a challenge. 

Our message these days is that the real estate market is one of extremes. Homes will sell fairly quickly if priced and staged properly, or they will take a very long time to sell and ultimately at a lower price; there is not a big market for average. “Sure, average times are 75 days, but my home is not average,” we often hear. The flip side to this argument was the one we heard yesterday. “Sure, anyone can sell their home quickly if they want to give it away!”

This has always been our cue to chime in with the latent demand speech. In business speak, latent demand is an environment where the demand for a particular product can not be met by existing suppliers. In my traffic engineering engineering days, latent demand was always a consideration. There may be a plethora (yes, we used that word a lot) of motorists wanting to go directly from Point A to Point B, but no road exists. Build it and they will come. In real estate, there are still many, many people who would like to purchase a home, but the home which is right for them is not currently among those offered for sale.

Latent demand as it relates to the home buyer can be thought of as the fence sitter. These buyers are far greater in number than the buyers who will come later. They have accumulated like water at the dam, and the water upstream and on its way is not nearly so deep. Fail to catch a fish from this pool, and your chances later on are significantly diminished.

Or, think about latent demand this way. If you have ever braved the shopping mall on Black Friday, you know that the consuming throngs line up twelve deep at 6:00 AM, anxiously braced for the big opening. Each Gold Card-toting shopper is eagerly awaiting their opportunity to compete for the offerings, to be the first to find the perfect apricot chenille robe and at a bargain. Once Nordstom unbolts the front doors, the waiting mob will stream in, and they will swiftly either make their purchases or decide to come back another weekend, because the robes were too expensive or just flat-out ugly.

The rest of the day will see a steady stream of shoppers arriving late. Each new person through the door will be a new opportunity to unload that hideous housecoat, but it’s a numbers game, and having failed to capitalize on the first wave of opportunity, chances that someone will suddenly breeze through the door wanting exactly what you are offering are significantly diminished. You might move the inventory, or you might have to move it to the sales rack. Now the next trickle of shoppers sees your mark-down, yet the sense of urgency has passed. Why hasn’t anyone bought it? Is it really that ugly? Will it be offered for less next week if I’m just patient? This is where, in San Diego, they all decide to go to the beach.

Now, let’s assume that next year you still have a population of consumers wanting their bargain intimate apparel, but most of them no longer have Gold Cards; it’s something about a mortgage crisis. And a recession. They can’t afford the inventory any longer, but they would still really like to buy something. Even the people who can afford the offerings are being a little more thoughtful about their purchase. No one wants to see their new duds on the discount rounder next week.

When the store opens, a crowd is still at the door, but it is a little thinner. They don’t rush in and out with their purchases anymore, but they linger. And they have been waiting longer. They are “just looking,” looking for an opportunity and waiting for the perfect product. Why settle for ugly apricot when a new delivery of candy apple red might be on the next truck? The store gets crowded, a log-jam of sorts, but the flow of new customers arriving throughout the day is more of a trickle. Too many purchased last year when they were able and when they were caught up in the buying frenzy. They are all at the beach.

The bottom line is that there is still demand for the product, but the demand is latent, and most existing suppliers are not yet in a position to meet this demand. There is still a market for our hypothetical bathrobe; the consumers are the market, and several things have to happen before they check out at the register. First and foremost, the product has to be affordable. With fewer options for payment, Nordstrom is starting to look a lot like Neiman Marcus to the buyer on a budget. Second, there has to be a perception of value. Value can be a discounted price, superior quality, or a combination of the two. Finally, there has to be a shift in the attitudes of the shoppers, and this will come with time. It is understandable to question the quality of the dining experience at an empty restaurant, and people will be more inclined to whip out their checkbooks when others moving toward the check-out line.

Our real estate market has effectively been Closed for Inventory. We have been closed while we take stock, restructure our pricing, and reconsider our merchandising. We have an accumulation of latent demand knocking at the door. “Sure, anyone can sell their home quickly if they want to give it away.” And, anyone can sell their home quickly if they position it properly, with proper pricing and presentation. Yet, if you fail to appeal to the latent demand quickly, you may find your home on the discount rack.

ABOUT THE AUTHOR  Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens.