There’s a different feel in the wind.
We all know which way the wind was blowing in the real estate market earlier this year: it was a time of gale-force, hold-onto-your-hat currents! Houses were whipping on and off the market in (seeming) moments, and buyers were being buffeted about trying to race to the next new listing before it was gone. Prices were up, and were being bid even higher in multiple offers. There were scenarios involving so many offers that homes receiving “only” 4 offers on their first day seemed tame and downright sedate. There were situations with 9 offers. Situations with 14 offers.
But about a month or so ago things started to feel different.
In the past I’d gotten used to what I called the Week Before School Slowdown. The week before school is a distracting time, and many folks’ attention is drawn away from house hunting, and is focused on more time-sensitive pursuits. Some families spend their kids’ few remaining unstructured days on last-chance beachy getaways. Other families spend every free moment scooping up school supplies at Target and filling all the backpacks. I’ve come to expect a little lull in real estate intensity during this time…and in the following week too, when everyone recalibrates to alarm clocks and bus schedules and homework and soccer practice. But after everyone settles into the new routines, I typically see buyers re-focusing on the home search, and feel a perceptible rise in market activity in my little corner of the universe.
I didn’t feel that bump this year.
Hmmm, I thought. There were still g’zillions of house hunters out there who hadn’t found anything yet. But those Urgent Winds weren’t blowing around with such ferocity. It felt like everyone was taking a deep breath. It felt very different.
I started telling buyer and seller clients that I wasn’t sure yet WHAT was going on but SOMETHING was. (Some folks thought I was hallucinating; I wasn’t. Turns out 7% fewer homes were sold this September than last September.)
Earlier this year, if a great looking, appropriately priced house in a super location went on the market it almost always went under contract very, very quickly. Suddenly I was seeing some of these “cream puffs” pop up…and STAY on the market for a while. I heard of cream puff houses getting no showings. I saw cream puff price reductions happening with greater frequency.
Hmm. Changing winds.
I still say we don’t know exactly what’s afoot. We’re going to need more time and more data and more analysis to be sure if we are looking at a macro change or a momentary change.
But we do know a few things.
We know inventory of homes for sale has increased.
This is important because of the simple dynamics of supply and demand. We analyze the market by the supply of homes, and how many we project can be sold in a month. If we see a 5-6 month supply of houses it is considered a market fairly balanced between the interests of buyers and sellers. When there is an 8, 10, 11 month supply (as we saw a decade ago), that’s a market that favors buyers. When we see a 1 or 2 month supply of homes for sale, we are looking at a seller’s market, where sellers can up their prices and expect quicker sales.
There have been neighborhoods/price points where I had been routinely seeing only a few WEEKS’ supply, which is a super-heated seller’s market! In some of those areas I now see about a 3.25 MONTH supply. While that still puts things in the zone we’d call a seller’s market…it is a significant change in a short period of time, and at a time of year we’d expect inventory to lessen. I think buyers and sellers are still trying to figure out exactly what it means to them.
With some more competition, should sellers tone down their zooming expectations of price? Perhaps. If houses are seeming to stay on the market a little bit longer, can buyers wait a day or so to see a great new listing and expect it will still be there? Maybe. Could be. Maybe not.
Here’s another thing we know: interest rates have gone up, and are continuing to do so.
It wasn’t all that long ago that my buyer clients were getting mortgages with interest rates of 3.75%. Now we are seeing rates at 4.875% and 5%. Are those really high rates? Actually, NO! (Everyone is advised to go talk to someone who bought a house in the 1980’s, and hear about their interest rates of 18%, 15%, or 12%. That will help put into perspective the fact that, historically-speaking, a 5% interest is pretty fab.) But if you are a buyer who has been looking for a while without nabbing a house, it’s tough to watch your 4% or 4.25% rate turn into a 5%. Suddenly your lender tells you you can afford less house, so you should start looking at a price point that’s a little lower.
And while your interest rate has been going up…alas…home prices have gone up, too. So the houses you like are costing more and the houses you can afford are, well, “less.” Less space. Less good condition. Less well situated. Less adorable. Less like you gotta jump in and make an offer right away, because maybe you wouldn’t be so heart-broken to lose out on that house. But buyers will also want to note that rates are expected to keep rising, so in a few months folks may look back and realize that today’s rates were, well, less.
Should buyers tone down their expectations of how much house they can afford? Perhaps. Should sellers be upping their game and trying a little harder to be adorable again? Maybe. And rethinking how high they should be pricing their house? Could be.
So with this change in the wind, should buyers and/or sellers be panicking? I don’t think so. Though the speed of appreciation may be dialing back, home values are still up. A lot. Inventory is still relatively low (not even at the 5-6 month supply of a “balanced” market yet). But buyers actually have a bit more inventory to choose from…which is a welcome change for them! And though rising, interest rates are still quite reasonable.
Here’s another we know: buyers will always be buying, and sellers will always be selling. However, we should all keep our eyes on ye olde weather vane, to be sure we are keeping up with changing winds.
It seems to me both buyers and sellers have a little bit of grieving to do, and then can buckle back down to the task at hand. Sellers may need to grieve for the time when they were the only house on the market for miles around; there are some competing listings out there now. Buyers may need to grieve the loss of super-low mortgage interest rates, and adjust to the idea of higher monthly payments or less costly homes. It’s ok for buyers and sellers to take a moment for that (sad) deep breath, and then get back to planning for the next house showing!
To manage the buying and selling processes well, the key today…as always…is to keep up with changing conditions, and to set strategies accordingly. Savvy agents will be staying on top on how things are evolving each day, and will be able to help you set your course. And we’ll all keep our eyes out for shifting winds!
On Facebook: Laurie Simon Goldman, Sibcy Cline Realtors