What happens in a slowing market?

Consultant Kitty Cole has some interesting thoughts on the slowing market that got me thinking: what exactly happens in a slowing market? I’ve re-purposed parts of her blog below and added my own thoughts on the market at this pace, as well as interest rates in terms of what somebody can buy.

Image result for housing market

So, is this market change normal or is the slowing a correction? Here are a few thoughts from Kitty’s blog to help you figure it out:

The market has begun to change, albeit slowly. A small segment of the market has slowed down in several Bay Area counties, including San Francisco. The indicators of a slowing market are that the number of active listings rise, the “Days on Market” increases and price reductions occur. You may also see more contingent offers (but fewer with no contingencies at all).  My two cents: In Contra Costa County, we are in line with these indicators. The outer-lying areas such as Concord is where I am really seeing the price reductions and increased time on market. However, if the property is remodeled and priced right, there are still multiple offers, just not as many.

The buyer pool for your property has decreased in the last year because the interest rates have risen more than a full point. For every full percentage point they rise, the buyer’s purchasing power goes down by almost 10%. Buyers who could afford a home worth $1 million last year, can now afford $905,000. That alone will significantly impact the buyer pool.

As far as projections go, CAR and NAR both feel that there will be a slower 2019. They forecast a slow-down in the 2nd half of next year, but Kitty’s theory is that it will happen a bit sooner since some market segments are showing signs of correction. The economy is healthy and the unemployment rate is hovering consistently. The Fed has stated that there will likely be 2 interest rate hikes this year, which will price out some buyers. Given how long we’ve been in recovery mode in the real estate industry, it’s normal to expect a correction.
The economy: The economy is healthy (the GDP was 2.0% for the first 3 months and 4.2% for the 2nd quarter) and the unemployment rate is hovering around 4.2%. There have been 9 + years of recovery in the economy. There have been 5 and half years of recovery in the real estate market.
More of my two cents: Many analysts are predicting 2020 for a correction. Most are saying there will be a correction, the question is just “when?” We still have low inventory and our local economy is robust, so for me, the question is “will it pick back up in September and October after all the summer vacations are over and the kids are back in school?” Or, are these current changes going to continue? Nobody has a crystal ball, so we will see. Sellers who are on the fence will be considering “is this is about as high as the market is going to go for the near future?” If you believe that, then it is time to sell.