Last Spring I sent out a market update that described ever growing bidding wars, contingencies being waived and frustrated buyers. Sellers were listing their homes to droves of interested buyers. Most listings did not make it beyond a single weekend of Open Houses and had a stack of offers waiting to be reviewed by that Monday.
A lot has happened since then! Interest rates have consistently increased since the Fall to above 6%, that scary word recession is being tossed around every major news network, and consumers are feeling the ever growing tightening of inflation. The world seems to be flipped onto its head and yet the Real Estate Market rages on.
November and December were an interesting couple of months. Every Realtor you spoke with was probably saying
“the market is shifting.” It was true-in that small window, homes were actually sitting and if pricing wasn’t aggressive, sellers ran the risk of buyers passing it by. For many of us, we felt like it was the start of the shift, a true leveling out of the market, similar to what we saw in 2019. Buyers were going to be able to shop in a more traditional manner, and sellers were going to have to play ball and even negotiate in order to get a deal done. Fast forward to today the 1st of March…
Homes for sale by town are in the single digits. In many towns there are only 3 or 4 active listings. And those few are, in most cases, grossly over priced and can almost not be counted at all. As we have learned over the last few years, with low inventory comes more competition. That’s right-our early Spring market is already showing bidding wars again. Lines of cars at Open Houses and frustrated buyers. “But how can this be? Home prices haven’t gone down and interest rates are so much higher, so how can buyers afford to keep bidding over list price?” Great question! Last year we were seeing $80-$100K over asking price offers. It almost became common practice by mid Spring. That simply cannot continue as buyers' buying power decreases with rising rates. So what we are seeing is closer to $20-40K above asking. Many buyers simply do not have the buying power to go much higher than that, even if they wanted to. There is simply no other way to break this cycle without more homes for sale. But what does the market look like for sellers' this year and will we finally see that surge of listed homes?
The easy answer from what I see is yes to a degree but mostly no. Here's why. I predict that we may FINALLY see the boomer generation sell off some of those larger homes to down size and/or move South. They are in the best position to still sell at the peak of the market and use the proceeds to pay cash on smaller, less expensive homes, eliminating the need for a high rate mortgage and a lot of wasted money in interest. It is the other generation that scares me the most. My age group of 35-45 year olds. The ones that bought their first or second home and locked in a beautiful interest rate of lets say 3%. They don’t love the house they're in anymore. Either they have outgrown it, they're not in the town they ideally wanted to be in, or they're just ready for a change. They would like to sell and buy a new home but….they don’t. Even though they have plenty of equity, they still sit tight because they don’t want or can’t afford to take on a 6% mortgage. This of course, eliminates "would be" listings, that in turn keep our inventory down. And as we've seen to date, low inventory equals more competition. But what about first time buyers…
This group I work with a lot. And it is this group that needs the most advice right now. They don’t have the luxury of a ton of built up equity in a home, like the buyer that is also selling. That buyer can simply roll their equity into the new home's down payment. It is a great position to be in. But for our first time buyer, any money they come up with is coming directly from their savings. And in a competitive market, in most scenarios, that includes closing costs. This group is struggling. They know renting long term is a bad idea, but they also don’t want to go crazy in a bidding war and over extend. I strongly encourage these buyers to get into home ownership as soon as they can. Our market is strong and we have yet to see any evidence that would suggest a drastic shift in pricing. A lull or leveling off certainly seems possible eventually, but owning that home guarantees you're paying down your own principal and not someone else's. Wouldn’t you love to be in the aforementioned buyer's shoes? Selling with equity to buy your dream home? Unfortunately, this may mean that the first one does not have everything you want. I am certainly not saying settle, but some compromise will go a long way and your future self with thank you! Another important thing to consider is the likely opportunity to refinance your higher rate in the not so distant future. It's like the old saying goes, "marry the house, date the rate." With things changing so rapidly, please don't hesitate to reach out to me with all of your questions. And as always, I look forward to helping you and your friends with your next real estate move.
Nick Motsis
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