WHAT’S HAPPENING WITH THE HOUSING MARKET?

I’ve been getting a lot of questions about the housing market these days. You may have noticed homes are sitting on the market a lot longer. You may have noticed a lot of price reductions. You may have seen stories on the news or across social media and wonder what’s happening.

Yes, the housing market has shifted. But before anyone panics….there is no housing bubble about to burst. WE ARE NOT IN A BUBBLE. We are experiencing what’s normally a 7-10 year housing cycle, entering the deceleration phase. Deceleration does not mean depreciation. We are not moving backwards. Homes are still at record high values and experts predict that home values will continue to appreciate, just at a much much slower rate than they have been over the past several years.

Q. HOMES WERE SELLING IN 1-3 DAYS LAST YEAR AND NOW THEY ARE SITTING ON THE MARKET. WHAT’S HAPPENING?

A. The short answer is supply and demand. The longer answer involves interest rates and home pricing. We are still in a sellers market with a lot of buyers looking for homes. The problem is buyers have lost some of their purchasing power as interest rates have risen. Using my particular neighborhood as an example….this spring when interest rates were at 4%, the homes around me were selling (on average) for $385,000. A buyer with an interest rate of 4% could shop for a home around $390,000. Today, that same buyer, with the same monthly budget, can only shop for homes up to $340,000 because the interest rates are at 5.25% and expected to rise.

Q. DO INTEREST RATES REALLY MAKE THAT BIG OF A DIFFERENCE?

A. You bet! Buyers tend to shop by mortgage payment amount…..they tell the lender what they are hoping to pay each month, and the lender tells them what price range they can shop in. A buyer will tell me “I’m pre-approved with a lender for $390,000 and I’m looking for a 3-bedroom, 2 bathroom ” and then I’m off to find them the RIGHT home for that price. It’s the home price that sets the search parameters. Their monthly budget isn’t changing- what they could afford for a mortgage payment 10 months ago is likely what they can afford today.

Interest rates make a huge difference to the monthly payment amount:

INTEREST RATE MONTHLY PMT PURCHASE PRICE
3.75% $1,874 $392,500
4.25% $1,874 $373,000
4.75% $1,874 $355,000
5.25% $1,874 $340,000

Q. DOES THAT MEAN THE VALUE OF MY HOME IS GOING DOWN? 

A. Your home’s value has not gone down. In a normal housing market, homes appreciate at an average rate of 3-5% each year. Locally we have been seeing appreciation rates between 8% – 18%. My particular neighborhood has been appreciating at a rate of 10% each year for the past few years. The market simply cannot continue to appreciate at that rate, there’s going to need to be some balance. With buyers losing their purchasing power due to higher interest rates, experts predict pricing will need to reset to be more consistent with the average rate of appreciation.

I live in Cross Creek, so using my neighborhood as an example again….. the average 1,700sf home was selling for around $399,000 this spring…when really they should have been selling for $379,000. Home prices were artificially inflated due to high demand. And today, buyers are no longer willing to pay those artificially inflated prices, so pricing needs to return to “normal”. The value of your home is the same today as it was last year.
Q. THEN WHY ARE WE SEEING SO MANY PRICE REDUCTIONS?

A. Simple. Homes are hitting the market overpriced. I’ve seen several homes go on the market in recent months priced about $20,000-$40,000 over what I would have priced them at. And guess what, they are still on the market and not moving….they’ve been on the market an average of 37 days AND they’ve made multiple price reductions.

Using my neighborhood as an example again….10 homes have gone on the market between August 1st and October 15th…and only 2 of them have sold. The homes that SOLD- they sold in just 4 days on the market- because they were priced right and marketed well, no price reductions needed.

 

Q. I’VE BEEN THINKING ABOUT BUYING AN INVESTMENT PROPERTY, BUT NOW THAT INTEREST RATES ARE HIGHER, I’M THINKING I’LL WAIT FOR THEM TO GO BACK DOWN. WHAT ARE YOUR THOUGHTS ON THAT?

A. Interest rates are still at historic lows! Remember when they were 8%?  Or more?  Many experts are predicting rates will top out at 6% (we hope!!)….and they are also saying it’s likely the days of 4% rates are gone forever (I hope not!).  I’m consistently hearing that rates are going to keep going up over the next year, so if you are thinking about buying a home NOW is the time to do that!  Take advantage of the purchasing power that you currently have.  Since the market is moving slower, you can take your time to look at properties and choose the one you like best.  There are a lot of homes on the market (although many are overpriced).  Seasonally, it seems like home prices are usually lowest between October-December, so take advantage of that!   I love to look at homes and do valuations- so if you find a home that interests you and you want to know if it’s really worth what the seller is listing it for, I’m happy to check it out!

MY FINAL THOUGHTS….

The rise in interest rates is driving demand down…there’s no denying that. Higher rates and lower demand means there will be pressure on pricing because buyers simply cannot afford to buy at the prices they were able to buy at a year ago. It’s not that homes are losing value, it’s that the artificial inflation that we were seeing needs to be adjusted. Home values are stabilizing. Experts are predicting a much slower rate of appreciation over the next year or two with another growth spurt down the road as we move through the normal 7-10 year housing cycle.  If you are thinking about selling your home, it’s so important to hire an agent that truly understands the CURRENT market, because it’s not the same as it was just a few months ago.

The housing market is GOOD!

 

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