Once upon a time…
Although the market changes that are occurring right now are a relatively new phenomenon, they are playing out rapidly. So rapidly, in fact, that it feels as if the insanity that defined local real estate for the past six months was illusory- nothing more than a fairy tale. Since the beginning of March, we’ve been predicting that rising interest rates and inflationary pressures were going to dampen the unbridled enthusiasm that buyers brought to the market. Throughout the spring, there were occasional glimpses that things were starting to soften but it was May’s stock market gyrations that really sealed the deal. You could almost sense, in real-time, a correlation between each drop in the Dow and the number of scheduled appointments for buyers to walk through listings. Throughout the month, there were fewer scheduled showings and, as a result, fewer offers tendered on properties available for sale. We assumed that prices would also drop, yet, in an intriguing twist, they did not. Well, like a car wreck playing out in slow-motion, we knew that it was just a matter of time and it seems as if the inevitable reckoning may now be upon us.
Nationally, trade journals are reporting that the number of properties experiencing price reductions has jumped to 19.1%. Personally, as I’m composing this blog, I’m waiting for offers to be submitted on the three properties that we listed for sale earlier in the week. I’m confident that all three homes will sell, however, when speaking to my clients who are selling homes in excess of $300,000, I’ve already prepared them for the fact that they’re not going to be celebrating consummated transactions tens of thousands of dollars over list price. They will enjoy the gains in valuation, without any loss, that have propelled housing prices skyward in the past twenty-four months. Unfortunately, the Matterhorn has been scaled and there seem to be no new peaks left to conquer. Not great news for those who are currently selling, however, in the macro, things needed to slow down. Otherwise, we would still be careening toward the champagne-fueled housing bubble and the woozy, after-party correction that nobody wanted to endure.
My Predictions
My sense is that my client’s experience over the next few days will become the replicated standard for sellers over the next few months. The market will remain tilted in their favor because the imbalance between supply and demand will not have been remedied. Meanwhile, the Federal Reserve is expected to raise interest rates again in both their June and their July meetings. This means that the number of buyers will remain diminished. Stated another way, sellers will remain in control because of the supply imbalance but, because of the reduced number of buyers, they’re not going to be able to sell at the same eye-popping increases that your annoying brother-in-law continues to boast about having enjoyed when he sold last March.
Looking at things from the point of view of the continually beleaguered buyer, it’s a mixed bag. Fewer buyers mean that those who continue their quest will more easily prevail in a bidding war. And, buyers won’t have to wrap their heads around the latest round of dizzying price increases. The unfortunate offset is that it’s going to cost at least two percent more, per annum, for them to secure the mortgage to finance their now more-easily-attainable dream home. Historically, these are still great rates, nevertheless, the increase is sobering.
My Advice
The difficulties and frustrations of modern-day homebuyers have recently been quantified in a survey in which more than 65% of Gen Z buyers and 61% of Millennial buyers have admitted to crying at least once when going through the process of trying to purchase their home. My advice? Stick with the process. Yes, it’s difficult, however, the payoff is worth the effort. Sure, you may have to pay more than you had set out to spend or you may be locking in at an interest rate that you feel is outrageous but the alternative- not buying- is, from my perspective, not a wise alternative. What I mean is that the market is going to continue to benefit sellers for a minimum of three to five years. In thirty-six months, do you want to look back and realize that there was no market correction and interest rates have gone up another point or two? Do you really want to look back and recognize that you’ve lost the opportunity associated with creating several years of equity? Stock market day traders have come to realize that market timing doesn’t work. Don’t be a market trader. The difference between the net worth of homeowners versus renters is staggering. In 2019, homeowners in the U.S. had a median net worth of $255,000, while renters had a net worth of just $6,300. That’s a difference of 40x between the two groups! The sooner that you become a homeowner, the more quickly you will be on the road to creating significant wealth and a more comfortable retirement.
If we can be of help, let us know. We’d love to talk! Call us at 330-8750 or email us at mark@marksiwiec.com Good luck!