Real Estate Market Update
How long will the current seller’s market last?
To put the following information into context, allow me to restate what most everyone knows - that we have been in an extreme seller’s market for a year. We have all heard about the multiple offers, the homes going many 10s’ of thousands above asking, buyers having to make offers on home after home after home to finally get one, and other extreme stories.
Hot Seller’s market
The reason for this Is probably obvious - supply and demand. There are not enough homes on the market for all those who want to buy.
Young people are more convinced than ever that homeownership is something to which to aspire.
Adding to the high demand are the record low interest rates, 2.8% at this writing.
These factors, together, keep what sellers there are in the very desirable position of high buyer demand for their homes.
So, now the question is
“How long will this last?”
Although I don’t have a crystal ball, here are some facts at hand that can enlighten us.
(If you’re a visual person and you happen to like graphs, there are graphs below illustrating each point)
First, in average years, July and August are the months that we see the highest new listings/homes for sale. This year - The active listing inventory decreased by 239 homes in the past two weeks, down 9%, the largest drop of the year. In August there were 12% fewer homes that came on the market compared to the three year average between 2017-2019. (We don’t count 2020 as it was a skewed year due to Covid).
So, We experienced fewer new homes coming on the market in months where we normally have more new homes coming on the market, only intensifying the shortage of homes!This bodes well for sellers because a great many homes would have to come on the market to fulfill all the demand for homes. So, if a homeowner is thinking of selling in the next three to six months, it will probably work out well for him/her.
Light green bars - Available Homes / Dark green bars - Homes sold
But, what if interest rates rise? Won’t home prices have to go down as a result?
If jobs numbers continue to do well, the FED may allow rates to rise. However, rising rates can lead to inflation, so any increase will probably be done very slowly. Even if the FED determines that interest rates should rise, it will be done in such a way as not to spook the investment markets.
There will come a time, as always does, when many homeowners decide all at once to put their homes on the market. At this point, it would be this event of many going new listings flooding the market that could create a downturn in house prices.
But what about foreclosures? Could that cause a flood of new listings?
Very rare that a homeowner would suffer foreclosure at this time. Every homeowner has gained significant equity in the last couple of years. If a homeowner is not able to pay the mortgage payment, he/she can sell their home, take the equity and perhaps purchase something smaller.
Indeed, both short sales and foreclosures combined, made up only 0.6% of all listings. There are only 10 foreclosures and 3 short sales to purchase today in all of Orange County. That number would have to rise manyfold for it to have impact on housing prices.
In addition, those homeowners who were current with payments and had sufficient FICO’s refinanced within these last couple of years to make their mortgages more affordable than they’ve ever been.
In short, it looks good for seller for a while if all progresses as expected. Buyers will continue to enjoy great interest rates, even if they rise some over time.
The only challenge to buyers is that sellers have a perception, and at the current time, the misperception that the fall and winter months are not good times to sell.
Nothing could be farther from the truth.
As has been shown here, demand is high and buyers will seize opportunity through the year in large numbers.
