The media loves hyperbole. I can relate, real estate agents do too. Some of the same instinct toward flowery language when selling a home rests with headline writers and journalists.
This week I’ve seen dozens of headlines about the housing market “meltdown,” “crash” and “implosion.” Nowhere to be seen is sensible language describing what’s really happening. A recalibration, normalization, cooling trend. The U.S. housing market during the back half of 2020 and into 2021 was unsustainable. Anyone who suggests that was normal, good, or a permanent future for the market wasn’t paying attention to the difficulties all players had navigating the heady days of the early 20’s.
Normal is the New Normal
With inventory rising, buyers can finally, sensibly, request an inspection and an appraisal. Sellers who overprice their homes are faced with adjusting to the market and calculating whether their house will appraise so their buyer can obtain financing.
Buyers can take a breather and make sure they’re making the right decision for their lifestyle, their family and their work situation. They can be reassured that they’ll have more than 10 minutes inside the property and can actually spend additional time with an inspector making sure any evident issues are ones they want to take on or ask the seller to repair.
Buyers have more homes to view! Lines of buyers and their brokers out the front door and down the sidewalk are gone. Thankfully.
Higher Rates = Fewer Wars
As in fewer bidding wars. Many buyers are telling our Kentwood brokers that while they wish rates were like January 2022, they’re happy not to bid $50,000 – $100,000 over list on their 5th offer to get into a home. They can lock a rate and know what they’ll pay; appraisal gaps are becoming so yesterday. Any cash that would have covered a low appraisal can go toward home upgrades, furnishings or repairs.
Do you remember what the interest rates were in 2018? The average that year was 4.54%, but they got up to 5%. Not altogether that far off the rates today as I write this. Again, 2020 and 2021 were not usual or customary, they were a reaction to a once in a lifetime black swan event.
Deceleration Does Not Equal Depreciation
Over the last month Metro Denver and the Front Range of Colorado have increased available inventory from 2 weeks of inventory to one month. We’re still selling through nearly every home that comes on the market in one month or less! I know to home sellers this feels interminable. Yet, it’s not enough inventory to signify a buyers’ market. We need three more months available inventory on top of the one month today to be a balanced market. I sold real estate in a buyers’ market, it’s not the end of the world. It’s just a different set of facts driving life decisions.
Home price appreciation will decelerate. To the homeowners out there, it’s not likely you’ll witness 16-18% annual appreciation again soon. It was a nice wave to ride. You will continue to benefit from lesser appreciation. Likely 6-8% this year and next.
To the buyers waiting on the sidelines for real prices to come down, it will be a wait. Possibly a long wait. Current price reductions of listed properties are those folks adjusting to the reality of the market recalibration, people who didn’t get their pricing right out of the gate. Not depreciation of market value.
Selma Hepp, Deputy Chief Economist at CoreLogic, explains that the housing market will see deceleration, but not depreciation, in prices:
“The current home price growth rate is unsustainable, and higher mortgage rates coupled with more inventory will lead to slower home price growth but unlikely declines in home prices.”
Home Builders are Pulling Back
Home builders are in the projection business and if they don’t project their inventory will sell, they’ll pull back from building more until it does. They’re in the supply and demand business. As interest rates went up, buyers in long term contracts to build a new home naturally got nervous about where their rate might be in 6 – 8 months and many pulled out. The cascade effect means builders are focused on selling their current inventory before building more. They’re offering incentives and reducing prices. The reduction in new home construction, even if short-term, will mean resale inventory is still a sought after commodity.
Whether you’re looking to buy or sell a home, reading past the headlines and hyperbole is key. Having an experienced Kentwood Real Estate Broker who knows what’s happening in the housing market can help you make an informed decision. Other team members who will be valuable as you go through the process: Prosperity Home Mortgage and HomeServices Insurance. Our partners who we trust to help you dissect the news and apply it to your life decisions.
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