On a macro level it’s easy to see why the real estate market has changed. Interest rates on 30-year fixed mortgages have shot up and are now nearing 6.5% as of 9/26/22. Earlier this year, a mortgage broker told me he attended a big mortgage event with industry leaders in New York and people were predicting 7% interest rates. At the time we were still in the low 5’s, and such a jump seemed unimaginable. Now those rates seem inevitable.
Inflation is a major culprit when it comes to rising interest rates. As inflation has risen, so have rates in an effort to cool demand and get the economy back on track. Rising inflation leaves potential home buyers with even less money to spend on inflated mortgages. It’s a lose-lose situation, which brings me to the stock market.
The stock market has gone to the bears, figuratively speaking. As of 9/26/22 the S&P 500 has lost over 20% of it’s value off of the most recent highs. That means potential home buyers who were looking to pull out money from the stock market in order to make down payments are looking at severely depleted portfolios. The question people are asking now is, “Are we in a recession?”
According to Steve Hanke, applied economics professor at John Hopkins University, there’s an 80% chance we’ll go into one (https://www.cnbc.com/2022/09/23/there-is-an-80percent-chance-of-the-us-going-into-a-recession-steve-hanke.html). “If they continue the quantitative tightening and move that growth rate and M2 (money supply) into negative territory, it’ll be severe.” Buckle up, the road ahead looks plenty rocky.
All this negative news on the national level has a real impact on buyers and sellers locally. It’s not just psychological either. In a highly unusual turn of events, I had more than one potential seller contact me in September because their houses weren’t selling with other agents. The first house was obviously over-priced by $200,000 - $300,000 and had been on the market more than 100 days. I told them I wasn’t going to be able to sell their house at their current price, which is not what they wanted to hear. They have since lowered the price by $100,000 with their agent, but that just doesn’t seem like enough because the house is going to need a lot of updating. Nobody wants to overpay for a dated house, at least not in today’s market.
Another seller recently contacted me as their house is still sitting on the market after nearly 2.5 months and nearly $200,000 in price reductions. The house is nicely updated, and I don’t think it’s overpriced now, although it probably was before. They’ve got seven weeks still until Thanksgiving, so I’m pretty sure it’s going to attract a buyer with their current agent, it’s only a matter of time and patience.
I recently went on a listing appointment and the seller wanted $200,000-$300,000 more that the current market value. I did not jump at the chance to sell the house and I was completely honest with the seller about her price expectation. My house is the exact same model, so I’m pretty sure I know what the seller’s house is worth. I’m sure she will hire a Realtor who will try at her inflated price, only to have to go back and ask for multiple, painful price reductions.
How do the overpriced homes effect the market? If anything, they make it easier for realistic sellers to move their homes and they support, rather than erode, current values. As long as our inventories stay low and we have a certain percentage of overpriced homes on the market, the few homes priced at market values will sell. In today’s market where there is an abundance of bad economic news, pricing appropriately is more important than ever.