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.

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.

Pending home sales are down in CA – what does it mean?

According to the California Association of Realtors, pending home sales have dialed back and marked the weakest February in three years.

Low housing inventory, eroding affordability and rising interest rates made pending sales on a year-over-year basis for the month of February suffer after a good start to the year in closed escrow sales. Also, sellers simply aren’t selling.

They did see elevated market activity, but the Bay Area pending sales specifically were down year-to-year for the fifth straight month. According to the release, the Bay Area has been plagued by a shortage of homes on the market and poor affordability.

We have seen an increase in listings starting in April, but with pent-up demand, buyers are getting frustrated losing out in multiple-offer scenarios and with ever-increasing prices.

If you want to know more about the market, give me a call!

What the most recent rate hike means

Last Wednesday, the Federal Reserve voted to raise interest rates by 0.25 percent. They set the rate for the overnight exchange of money by banks. Although this is not the same as a mortgage rate, over time, it will have an impact. Usually it is anticipated and already built in to rates by the time the Fed votes.

Then on Thursday, long term mortgage rates fell! Why? Jay Vorhees from JVM Lending entertains the idea that it may have created more “certainty,” which bond markets love, or the idea that markets may have overreacted previously. In addition, the Fed gave no indication that it would change course in the future with respect to additional rate hikes.

This hike is the first of three planned ones in 2017, plus three more for 2018 as well.

Navigating the inspection process when buying or selling a home

Whether you’re buying or selling a home, there will almost always be inspections done. Oftentimes, buyers will do roof, home, and pest inspections. Sometimes fireplace, foundation and sewer lateral inspections will be conducted as well.

Buyers are trying to determine the integrity of the house they want to buy – nobody wants to buy a home only to find out later that they will have to put additional money into it. However, sellers rarely know about these things off the top of their heads.

That is why it’s important, and beneficial to both parties, for inspections to be done. At the very least, a seller should do a pest inspection before going on the market to understand the cost of any issues, rather than deal with negotiating after something is discovered.

Once inspections are done, they become a disclosure. So, if a buyer gets scared off for some reason, the inspections are a disclosure for the next buyers. More than likely, this will incentivize the seller to work with the existing buyer. Occasionally, there are bad inspections with unreasonable pricing and there is no coming to agreement between parties. The seller will usually get another inspection from a more reputable inspector.

The State of Convenience

The California Association of Realtors (C.A.R.) report that 69 percent of Americans are looking for ways to simplify their lives. Furthermore, they say, 74 percent of Americans will walk out of a store – even if they have exactly what that person is looking for – if the service is poor. And 45 percent of U.S. consumers say they are likely to pay for a service that provides extra convenience in their lives. See their graphic below:

So, what’s the conclusion here? Consumers value time, and therefore convenience. This also translates to buying a home. Home buyers these days, especially millennials, want updated and move-in ready homes. They want properties conveniently located nearby public transportation or in an area with a high walking score.

As a seller, taking care of deferred maintenance, updates or remodeling will appeal to these convenience consumers. Though you can’t change the location, you can highlight positive conveniences. As a buyer, know that living without some of these things may either get you a home or a better deal.