Trick or Treat? A Review of the Current Real Estate Market
It's feeling SPOOKY out there, and I am not talking about Halloween! We have entered a different real estate market. After experiencing a strong sellers' market for many years, the tables are starting to turn (although at 2 months of inventory, we are still technically in a sellers' market). I encourage you to see this shift as a good thing, however. I sure am!
So, what's happening out there?
FACT: The market has changed
FACT: Interest rates have doubled
FACT: Buyers and sellers are in shock
MYTH: The market is bad
MYTH: Monthly payments have doubled (see examples below)
MYTH: It's a horrible time to buy!
The market HAS changed, but it is not a bad thing! What we are experiencing out there now is what we call a NORMAL market. Homes are taking longer to sell, price reductions are occurring, buyers are negotiating prices, buyers have contingencies intact, buyers don't feel a sense of urgency to offer fast or risk losing a house. The last few years have been crazy, and a little bit scary. Inventory was LOW, buyer demand was HIGH, interest rates were LOW, prices were HIGH. Demand far exceeded inventory, and buyers had to compete against each other for nearly every property that came on the market, resulting in waived contingencies, and prices 20, 30, or even 50% over list price. If you had a home to sell first and needed to include a home sale contingency, forget it. If you were an FHA or VA buyer, forget it. Sellers were the ones doing a pre-inspection to make available to the dozens of buyers who wanted to buy their homes. If you weren't cash, you needed to waive your financing and appraisal contingencies, include 5+% earnest money, close quickly, and think outside of the box to make your offer stand out (free design services, sporting event tickets, concert tickets, buyers paying for closing costs, and more incentives JUST TO GET A HOUSE). Sure, sellers loved all of this craziness, but it was very scary and unsustainable.
Now, buyers get to start calling the shots, and sellers are SLOWLY realizing they can't be greedy anymore.
Interest rates are currently sitting over 7% for a 30 year fixed rate for someone with a good credit score. This is more than double where they were 12 months ago.
BUUUUUUT, historically, rates are still good. October, 1981, rates were over 18%! And buyers were still buying then. What goes up, must come down, right? Short term, they're a shock, especially for sellers who were contemplating selling but are locked in at a 3%, or better, interest rate.
And, we keep hearing that since rates have more than doubled, then buyer's monthly payments have doubled, too, which prices a lot of buyers completely out of the market, understandably so.
I live in Seattle. Prices are astronomical here. The average price of a home in Seattle is $934,925, 7.9% increase in the past year (ZILLOW). (It has come down from its peak in May of $968,536). We have seen an absolutely insane market where any buyers who do not work at one of the tech firms, are not royalty or an uber-succesful online influencer have no shot in hell at buying a home here. Ever.
Let's take a closer look at this.
EXAMPLE:
Let's say you budgeted a $5000 monthly mortgage payment.
Looking at the market in February 2022 (just a short 8 months ago), interest rates were 3%, so that $5000 would have gotten you into a $1.2 million home (with 20% down).
Today, with rates around 6.5% (actually closer to 7%, but they are fluctuating daily), and that $5000 payment would get you into a $850,000 house (with 20% down).
But, what a lot of buyers are not taking into consideration is that $1.2 million house in February was probably listed at $850,000. And today, that $850,000 house might have been listed higher and dropped down to $850,000. So. Same house. Same price. Same payment. Period.
REAL LIFE EXAMPLES:
1. This West Seattle (Alki) beach bungalow was listed in February 2022 for $850,000, received 19 offers, and sold, 2 weeks later for $1.2 million! It is 1390 square feet. That is $863/square foot! The value of this home has come down, and continues to drop, reducing the amount of equity the buyer has in the home.
2. This West Seattle (North Admiral) Tudor has been on the market for 82 days. It was originally listed for $925,000, and the price is now $880,000. My guess is it sells for somewhere around $850,000. It is 1320 square feet. That is $644/square foot.
Both houses are in highly desirable neighborhoods with similar square footage and finishes. One buyer paid $1.2 million at a 3% interest rate, and another buyer will pay $850,000 at a 6.5-7% interest rate. Same monthly payment. Same house. But the buyer of the North Admiral Tudor will be able to refinance when rates come down, which will reduce their monthly payment from $5000 to potentially $4200 (if rates come down to 4.5%), and will have a lot of equity once home values start to go up again.
Buyers, you are are weird. You complained when you had to compete against EIGHTEEN other buyers. And now, when there is ZERO competition, you don't want a house because no one else wants it.
The time is now. YOU are in the driver's seat now, Buyer. Yes, you. I am talking to YOU!
Have you heard this?
It's true. Now is the time to find the house you love. Find it, fall in love with it, and marry it. It is a long term investment. But that interest rate? Date it. Don't get too attached to it because someday, you will be able to replace it with a much nicer, shinier, lower rate.*
What does the future hold? I can't speak for the nation, as I am most familiar with the Seattle market, and my crystal ball is not working (or else I would be sitting on a beach somewhere basking in my glory from a perfectly timed real estate and stock market), but I will tell you what I have been telling everyone: I don't think we are going to see a repeat of the Great Recession. The unhealthy real estate market is what caused the downturn then (zero down loans, easy credit, no regulations, low interest rates and inflated prices). Yes, we have had low interest rates and inflated prices, but the buyers have been strong (20%, 50%, or more down, and a lot of cash buyers, which equates to built-in equity from the start). Plus, we have been struggling with a lack of inventory for a long time, with no end in sight. Sellers who are sitting on 3% interest rate loans are not super excited to sell now. We will continue to see a supply shortage, which will prevent home values from plummeting. So, for all of those buyers who are waiting for the market to crash, you are going to be waiting...and waiting. The risk of waiting out the market is: when rates come down again is the time all of the other buyers, who have been waiting, will reenter the market creating another frenzy, resulting in multiple offers and rising prices. Again.
Not sure if you heard me the first time, but...THE TIME TO BUY IS NOW!
But what if I am a seller, you ask? If you are a seller who also needs to buy, it is not peak selling time, but you have the advantage of being a buyer in a less competitive market. When you are both a seller and a buyer in the same market it balances out, no matter the market. You either sell high, then have to buy high, or you sell low, and get to buy low. And, if you must sell now, price appropriately. Now is not the time to overprice and try it out. That always backfires. Homes priced well are still selling quickly. Price ahead of the market, and you will sell fairly quickly. (I know a great local real estate broker who can help you with accurate pricing. Wink, wink).
It's extremely hard to time the market perfectly, and if you wait and try to, you might miss out on something (whether it's the perfect house or the true bottom of the market or a lower interest rate).
***Seattle is expensive, no matter what. If you have been priced out of this market, let me know. I have a network of agents nationwide who can help get you into a house in a more reasonably priced market.***
Come at me with your questions, concerns, gripes, you name it, I want to hear it!
*Again, my crystal ball is not working, so all of this is speculation. Will rates come down enough for you to refinance into a lower monthly payment? Probably, but we don't know when that will happen. Please do your own research and make your own choices based on your own personal experience.
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