Sales Down…Prices?
/No matter where you go or who you talk to, everyone has a different take on the future of our money and direction of home prices. Any homeowner today, especially long-term owner, has had the fortune of watching your home equity rise over the last 14 years. It seems like yesterday, but the financial crisis of 2008 is over a decade in a half in our past! Remember as you grew up your parents would always tell you how time speeds up as you age. Boy was that true!
What is really going on in our local real estate market? Are prices rising or falling? Are sales up or down? Is the real estate market on the verge of a major change or will status quo prevail? The answer to these critical questions lies in the past and in the present. Our future depends on the stability of our most cherished asset…our home!
Yes, sales are way down. Are lagging sales an indication of our home values. The answer oddly is NO. We must first define the word ‘sales’. When calculating the number of homes actually sold, we are looking at actual closings where ownership has changed hands. Over the last few years, we have seen the lowest inventory of houses available for sale maybe in the last 50 years. The reason is a bit complicated. One reason is that any homeowner looking to sell and then buy must find a new property to purchase. As I always tell my senior clients, I don’t want you selling your home with nowhere to go. I don’t want to see you wandering the streets with a backpack! It is common sense that if your goal is to downsize and purchase a condo or smaller home, with inventories are at all-time lows you probably won’t be able to locate that special new property. Therefore, if that is your goal, you won’t be moving until inventory increases.
Another reason for sluggish sales is the uncertainty in the financial markets. Interest rates have risen faster than any previous time in our history. Just a year ago a 30-year fixed rate mortgage was at 2.8% for a 30 year loan. Today we are about to exceed 7%, which by historical standards is quite good. But we are all spoiled by the historically low rates of the past few years. Buyers are beginning to withdraw from their purchase waiting for the market to stabilize. Add to the buyer’s frustration that prices have also risen at historical rates of increase. Higher interest rates AND higher prices spell trouble for would-be buyers, especially first-time buyers.
A third reason for sluggish sales is the pandemic. We were all isolated for about 2 years, and now our habits have changed, our willingness to seek change is lacking. When in times of uncertainty, we avoid change at all costs. Therefore, many would-be sellers and buyers are on the sidelines waiting for signs as to which way markets will go.
Lastly, our savings have shrunk by about 20% or more depending on your investments. Many senior homeowners plan to move into a senior apartment or community. This type of move involves monthly payments or endowments to those communities. Again, when in uncertainty we usually take that tact that is most conservative, looking to the worst-case scenarios. We then become frozen and avoid change.
All of the factors holding sellers back from making a move have led to the lowest inventory on record. However, this does NOT mean that prices have also fallen with record low sales volume. The reason is that with low inventory comes higher prices. That is the law of our economic engines. Supply and demand are the main factors when determining what prices will do.
Prices are holding due to not only low inventory, but high volume of would-be buyers. The millennials are about 80 million strong. Almost the same population as baby boomers. This group will control where we go as a nation. They have wanted to purchase their first homes but have been disappointed by the lack of homes on the market. Many are waiting in the wings for that next home to enter the market. Rents have risen to the point that even with higher interest rates, this young group will want to live in a single-family home or condo verses an apartment. Especially as they are now having children and forming their new families. This is a strong motivator just as when you bought your first home.
In closing, prices are holding. Buyers are plentiful. Interest rates are going to continue rising to stem inflation. I believe that prices will fall next year, but by only 3-5%. Baby boomers will want to downsize or move to a better living situation. Once there is momentum for homes going on the market, many homeowners will join the crowd psychology and list their homes. There will be alternatives for homeowners looking to buy and sell. Then we will get to a point where there are either a significant number of homes on the market or even an over-supply of homes. Then prices will fall. No one can guess how much or how fast prices will change, but the safe bet is that the market today favors the seller. For anyone looking to move to a senior community, this is the perfect opportunity as there are openings where you can choose the location and view of your new apartment. When we have a plethora of homes going on the market, choices will be limited. There will be waiting lists which will put off a move or diminish the choices out there.
Whether you decide to stay or go, know that the underpinnings of our local real estate market are strong. Homeownership is still one of the goals of most young families. The one factor that is like a pendulum is price. For now, all is well for those owning a home. No one can rightly predict the future. We can only make a calculated guess as to what will happen. Focus on the quality of your life verses trying to predict and time our real estate and economic future. Prices rise and fall but our lives are constant, with limitations to our health and finances. Don’t wait for factors out of our control to determine your next move.
