What a difference a few months make! This time last year, the topic of conversation was the lack of inventory and sky-high prices. We talked last month about the pressure that rising interest rates are putting on buyers, and indeed, many buyers have retreated to the sidelines. The ironic thing is that some sellers have now decided to get in the game, as evidenced by the fact that MLS listings are up 113% over June of 2021. However, with fewer buyers, listings are sitting slightly longer on the market, with the Days on Market before going under contract on an upward trend. How the market looks right now is a matter of perspective.
For Buyers:
If you happen to be one of the lucky buyers who aren't greatly impacted by rising interest rates, such as cash buyers or those with sufficient income and savings to absorb rate increases, then market conditions look pretty good. With a surge of listings in the $400k+ price ranges, buyers have plenty of choice and are regaining some negotiation power. Unfortunately, this same trend isn't happening in the under $400K price points. Buyers in this price range are the ones who have stepped out of the fray, as the rising interest rates price them out of market. While the number of listings has indeed increased in the under $400K price range, it's not because of increased listings - buyer interest has simply dried up.
Historically, interest rates are a short-term worry. We are coming off an unprecedented run of low-interest rates, and have grown accustomed to near-zero rates. If you look beyond the last 12 years, rates never stayed high (or low) for very long and always fluctuated. According to the Mortgage Bankers Association, mortgage rates are expected to settle back to 4.4% by 2024.
For buyers, this creates a conundrum. Do you wait for rates to come down? Or do you bite the bullet, buy now, and refinance later? It might be tempting to chase lower rates, but the reality is, this strategy rarely yields much savings. While you play the waiting game for a lower rate, home values continue rise and will negate any savings a lower rate could achieve.
A better strategy is to buy now, if you can, even at higher rates. Then you can refinance when rates are more attractive, but still benefit from the rising home values. There is no perfect time, because "perfect timing" can only be recognized in hindsight.
For Sellers:
Sharply rising inventory has started to impact some key metrics, specifically around pricing. For instance, in April of this year, 58% of sales closed over asking price. While a majority of sales are still over asking price, the percentage is on the decline. Most recently in June, only 51% of homes sold over asking price. In the same vein, the median sales amount over asking was $20K, while in June it had dropped to median had dropped to $15K over asking, according to the Cromford Report. show 51% closing over asking price with a median of $15,000 over. Comparatively, in more "normal" markets, the percentage of homes selling over asking is only about 15%, and median amount over asking is about $3K. While we are headed toward a more normal market, we still have a way to go.
In other metrics, we have seen the number of price reductions grow by 258% in the last 10 weeks, according to Cromford. With days on marketing increasing simultaneously, we expect buyers to start feeling more in control of negotiations for things like contigencies, offers below asking price, etc. We aren't there yet, but in a few weeks, sellers may need to consider throwing in warranties or covering closing costs to sweeten the pot and attract buyers. Competition among sellers for buyer interest is indicative of a more balanced market.
Have we entered a buyers' market? No. Not yet. But the trend is heading that direction. We'll see how the next 2-3 months play out.
Above all, no matter whether you are a buyer or seller, having a knowledgeable and trusted realtor to help you navigate this rapidly changing market will help ensure the best outcome.
All data is courtesy of the Cromford Report.
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We are here to help! If you want to find out how much your home is worth in this strong market, email me at [email protected]. We would be happy to help you determine if the time is right for you to sell your home or buy a new home.
