Is it too late to buy a home in this market? What about prices? Will they go off a cliff like they did in 2008? Did sellers miss their chance to cash in on the maximum equity they could get out of their homes?
These are common questions that we hear from clients and potential buyers. Anyone who has paid attention to the housing market in this past year knows it has been the real estate market’s version of Mr. Toad’s Wild Ride. After being essentially shut down after the COVID outbreak in 2020, the market took off like a slingshot by early summer as some of the restrictions began to lift. With rates around three percent and dropping, buyers flooded the market. But noticeably absent were the sellers, which in turn, started the price escalations. (Supply and Demand) There could be various reasons for this phenomenon, but the most common reason we heard was, “if we sell, where do we go?”
Regardless 2020 closed out its selling season and headed into the Holidays on an uptick, prepped for 2021. It seems there was a bit of trepidation as the early months of 2021 began to unfold. Interest rates were still declining as the spring/summer selling season approached, and though there was a little extra energy, it wasn’t until mid-March, or so, that the explosion happened. Once again, buyers flooded the market, hoping to take advantage of interest rates that were now headed toward the twos. Representing sellers meant sorting through as many as 10-15-25 offers, and representing buyers meant competing against those offers.
Over the past few weekends, we have held several open houses at a couple of our listings. Both were busy, and both homes went under contract almost immediately. But it was different than it has been. The market is softening. We would expect a slowdown as we begin to exit the “selling season.” Still, even though these open houses were busy, it was not the frenetic energy we had been previously experiencing. And the buyers, as well as the conversations we had with them, were interesting.
In another year and another market, we would see a mix of lookie-loos and neighbors, we would see people who were just out fun shopping and maybe thinking about their futures, and then there would be those who are actively looking to buy now. The people we saw in these open houses were almost all actively looking and ready to buy. They had representation, lenders in place, and were prequalified and ready to go if they saw what they liked. They knew they needed an agent who could help them present a clean, strong, and competitive offer and knew there was no time to get their financing in order after finding what they wanted.
But what we also learned was though the open houses were busy, they weren’t as busy as they would have been earlier in the year. Yes, the traditional selling season was ending, but after many conversations with potential buyers, we learned that was only part of the story. Repeatedly we would hear the story of how these people had been actively trying to buy into this market only to be outbid. We heard how they had to first become educated enough to know they needed a good team and be prepared to jump if they saw the right home. But after multiple disappointments, they had become discouraged. Many of them said they had moved to the sidelines and just watched, hoping things would settle down.
So maybe now this brings me back to the questions and concerns we have been hearing from our clients and potential buyers. We, of course, had firsthand experiences with our own buyers and completely understood story after story that had led to what we now refer to as buyer fatigue. The question is, how many potential buyers became so frustrated they just bailed out of their search entirely?
Is it too late to buy a home in this market? It is still competitive out there but not what it was. Interest rates are beginning to creep up, and we hear this will continue, albeit incrementally. And many of the frustrated buyers who stepped back are likely turning their focus to the coming holiday season, despite the value that is still there. Clearly, it is not too late.
What about home prices? Yes, home prices have increased dramatically over this past year, but yes, the value is still there. We have heard many concerns about a possible market downturn from our clients and from potential buyers in our open houses. This is a reasonable concern given the recent jump in home prices, but nobody is predicting a crash in the real estate world. This real estate market isn’t propped up by the illegitimate lending practices we saw back in the early 2000s. We now simply have a supply and demand thing—more people who want to buy a house than want to sell one.
In a previous blog (see the link above)I referenced how the mortgage defaults in 2009 resulted in a housing glut that shut down homebuilding. Even though new home construction has been ramping up, it is behind and will continue to be for some time. Hence, those in the know predict a deceleration of home value increases but not a decrease in home prices.
Over this past year, one primary concern for many sellers has been, though they could apply all the equity they have gained to their next purchase, they did not want to become buyers in this crazy market. The benefits of the affordability that comes with lower interest rates were offset by escalating home prices and the potential of entering into bidding wars with each offer they presented.
But it appears the market is finally softening enough to ease some of that concern. Now might be precisely the right time to sell and “move up.” Interest rates have ticked up but are still very close to the historic lows we saw over the summer. Many buyers have become so frustrated that they have dropped out entirely, while others are now becoming distracted with the coming holidays. So, the competition is still there, but it doesn’t appear to be anywhere near the level it was just a month ago.
We have seen over the last month or so what the “experts” have been saying all along. Supply and demand will hold home prices up while low-interest rates continue to create value in the current market. Buying selling, or both, now seems to be a great time to make a real estate move.