During this first holiday season on the road leading out of the recession, American consumers are taking different approaches in their decision-making.
Black Friday brought the requisite, shameful Web videos of elders being trampled in the stampede for a Pillow Pet or a $3 toaster, and Cyber Monday upped the stakes in an entirely different sort of consumer game, driven in large part by the flash-sale websites that have literally exploded in number and popularity this year.
On the other end of the spectrum, many celebrated "Buy Nothing Day." Others engaged in some of both; I bought usable gifts for kids only, and donated or sold 200 items of clothing, books and furniture for the holidays.
Even retailers capitalized on the dichotomy, with one luxury automaker promoting a "Season of Reason" sales event in which buyers were invited to "oversave" for gifts and personal purchases by spending $50,000 or more on a new car (irony, anyone?).
Such split mentalities, so to speak, will be a psychobehavioral theme among certain sectors of real estate consumers in 2011, says my crystal ball. The mindset of homeowners, in particular, will largely go in one of two directions.
Homeowners facing significant negative equity (owing much more on their homes than they are worth) will be increasingly willing to walk away from their homes, cutting their losses and strategically defaulting on their mortgages.
The stigma of losing a home has decreased as homeowners have noticed that the Wall Street interests who labeled strategic defaulters irresponsible and cowardly have virtually all engaged in strategic defaulting themselves.
Homeowners are simply more concerned with making a smart, long-term financial decision than with fighting with recalcitrant, uncooperative banks to hold onto deeply underwater homes.
Condo owners in dysfunctional HOAs will also move beyond feeling trapped, and the numbers of them who walk away will, I believe, ratchet upwards next year.
One outcome will be that the proportion of homeowners who are underwater will decrease next year as more homes enter the foreclosure funnel and become bank-owned properties.
But the picture for homeowners is nowhere near entirely bleak. In fact, even though strategic defaults will rise, the average American homeowner has demonstrated a deep desire to hold on to her home.
While some will walk right away from their homes, taking the credit hit and pressing a massive lifestyle reset button, many more homeowners in stable equity positions will experience a deeper-than-ever gratitude for their homes.
We will see this manifest in increased investment in home improvements — many of which will be investments of time as much as money — and more participation in local community endeavors. Some will embrace "locavoracious" food philosophies and community gardening. Others will express an increased interest in local politics.
Homeowners who bought at the tail end of the boom will decide to stay put and bloom where they are planted, having lost faith in a "hockey stick" recovery. Similarly, sellers will fall into several distinct mindset camps in 2011.
In the markets that have come out of the recession fairly well and are projected to do well in 2011, some sellers will thaw their self-imposed freezes and list their homes. But they will do so with a greater receptiveness to the market than they have had during the past several years. When their homes lag for 30 days, they’ll start cutting prices with less reluctance than before.
For the most part, markets that are projected to do well are non-"bubbleicious" Southern and Midwestern locales whose low costs of living and doing business has stood their housing markets in good stead. Job centers on both coasts with constraints on new development are also expected to bounce back eventually.
Many sellers nationwide will enter the first phase of detaching from their homes and list them as short sales. But they will be less attached to a successful short-sale outcome, refusing to spend extensive amounts of time or money going ’round with the bank. Uncooperative banks will find themselves adding those homes to their inventories of foreclosed homes (see the "walkaway" prediction, above).
A third group of sellers will list their homes and, in an effort to get them sold, will become "transactionally sophisticated," helping buyers leap over common financing hurdles like FHA condition requirements and low appraised values. Some will even engage in smart strategies like extending reverse offers to buyers who can’t seem to get off the fence. Burying a figurine in the yard will no longer be the last resort of a motivated seller.
Buyers will tend to fall into two major mindset categories. The first category will be the non-urgent buyer in a recession-resistant market who missed the tax credit (yep, they’ve been looking that long). The non-urgent buyer is only willing to commit to the right property, even if that means they must see 100 homes and make 20 offers to do that.
The other group of buyers will be similar to "transactionally sophisticated" sellers — very strategic, resourceful and adept with information. These buyers are very aware that their decision to buy a home will need to be a long-term one. They are willing and able to relocate, and they are researching everything from job growth to migration statistics before selecting the town where they will purchase their home.
As tech companies begin to open cloud data centers in places like Utah and North Carolina, many tech sector employees will take advantage of these opportunities and look to buy homes in these areas, after lots and lots of online research.
2011 will truly be a season — or rather four Seasons of Reason, when it comes to the way buyers, sellers and homeowners approach their real estate decisions, although reason will manifest itself in different ways for different niches within these consumer groups.
