When I (Steve) bought my first home in 1991, I asked my realtor about the risk that prices might fall, since they’d risen so much in the 80s. His response was something like, “Steve, if home prices actually fall, there’s going to be something so wrong in the world that your home value will be your least concern!” It was a way of silencing the concern by making it seem ridiculous.
Note: this article was featured in our July 2022 email newsletter.
Now, as a realtor myself, I realize he had practiced this “objection handler” or “script” to deal with buyer concerns. It’s a tactic they try to teach us in sales training courses. It wasn’t authentic, and although he won that sale, he harmed his reputation. The home was not a good investment, the timing wasn’t right, and there was no way I’d ever work with him again or recommend him to my family and friends.
The Changing Market
This spring and summer has been a time of transition in the real estate market, all across the country. As the Federal Reserve raised rates to try to tackle inflation, home buying has cooled off. Honestly, none of us know what will happen in the next year, but we are watching market stats and staying updated as the months go by. Interestingly, when the Fed raised rates .75% yesterday, mortgage rates actually fell by more than a quarter percent! By the way, if you want to keep up on rates, a good source is Mortgage News Daily.
For local housing stats, we turn to our favorite market data guru, appraiser Ryan Lundquist. He posts updates every week on his blog and twitter, and we’ll share a few recent observations here.
As the market comes off its hyper-speed run of the last few years, we are seeing fewer homes sell lately. Higher interest rates are certainly reducing sales volume, which is now lower than in the past six years.
When sales volume falls, the inventory of homes on the market rises, and the next graph shows a rapid rise since this spring. This is measured in terms of months of sales, so as the pace of sales per month declines, this statistic can rise quite quickly.
We’re also seeing a lot of price reductions this summer. About half of all listings currently active in the region have had a price drop.
What does this mean for you?
If you’re a buyer, you now have more choices, as inventory is rising and homes linger on the market longer. Of course, higher interest rates have affected the payments on a new mortgage, but if you can afford the payments, you have more bargaining power now, and you are not competing against 20 other buyers and offering $100,000 over listing price! Also, know that you can probably refinance that mortgage in a few years – the next time the country enters a recession, the Fed will start cutting rates to try to stimulate the economy, and you may be able to take advantage of that.
Yes, you might wait for better prices if this continues, but you also may just fall in love with a great home and realize it’s time to make the move. If you are waiting, recognize that interest rates may continue rising. And rents have certainly jumped lately! So, just know that there are costs to waiting that may counter the benefits.
If you’re a seller, you shouldn’t expect multiple offers on the first weekend with large price premiums anymore (although that can still happen for excellent properties), and you need to be sure you’re not overpricing. No more pricing for what you think it’s worth six months from now. Or even what it was worth back in April! We’re past the peak, and you need to be ready to meet the market where it is. Pricing too high and then reducing the price after a few weeks isn’t the best presentation.
And speaking of presentation, your home deserves strong marketing, including professional photos, maybe some staging, fixing up lingering projects, and really putting your best foot forward. You may want to consider offering a credit to buyers to buy down their interest rate or other concessions to make your offering stand out a little more.
We hope you’re all doing well! At our home, we’re buzzing with activity, getting ready for a daughter’s wedding in a little more than a week! Who knew it was this much work? Haha, actually, I think Santia knew. 🙂 This kid has also recently graduated from college, and the happy couple are moving back to Sacramento today. Sweet!
As always, let us know if you have any questions or would like any real estate help!
Until next time, Steve & Santia