Are we there yet? Summer 2022 Market Update
We hope the summer is treating you well! As I’m sure you’ve heard, real estate has been wild for the last 30 months or so. Since we’ve had several clients reaching out and asking about the state of the market, I thought I’d just send out a quick update to give our thoughts, and hopefully some clarity, on what’s going on out there. A quick recap on the last 30 or so months… First, just for a little context, since the end of 2019 the average price of a home in the Columbus area has increased by a staggering 43%, or right at 17% per year in that time. This is more than FIVE TIMES the normal annual appreciation rate over the last 50 years. You can do the math, but this means if you had a $350,000 house at the end of 2019 you might have picked up around $150,000 in equity! And for homes in more desirable areas, the growth is even higher. The reason for this growth is multifaceted, but at the core it has been driven by a shortage in the supply of available homes compared to the amount of willing and able buyers in the market to purchase. This imbalance has led to buyers having to compete with other buyers on most properties effectively creating a bidding war. Now, normally folks would simply walk away as the prices crept up but with low unemployment, low interest rates, and a lot of COVID relief money being pumped into the economy, homebuyers have been much more willing to pay a premium in order to beat out the next buyer. When this continues to happen month after month, the house that was sold at a premium becomes the new benchmark for pricing the next house coming on the market, meaning the premium becomes the new standard and then a premium gets tacked on top of that…over and over and over again. Where are we now? But times, they are a-changing. As interest rates, inflation, and economic uncertainty have crept up in the last 6 months, there has been a notable decline in buyer demand. I’d say we’ve only FELT this in the last 60 days or so. What this has suddenly meant for sellers is that they aren’t having a dozen people throw money at them the moment they put a sign in the yard, and overpriced homes are seeing a little more time and pressure on market before getting an offer. This is a good thing. Kind of like eating a sleeve of double stuff Oreos and milk every night. It’s a blast in the moment, but you’re going to pay for it later. The imbalance and appreciation in the last couple of years, while fun for a time, is not healthy or sustainable. The good news… What we are not seeing is a DECREASE in home values, at least not yet. Well priced homes in good condition as selling quickly and for full price or better. Balance is being restored to the force. I’ll cut to the chase; I do not believe we are headed for a housing crash. Virtually none of the factors that contributed to the 2008 crash, apart from soaring prices, are present in today’s housing economy. I do believe we are moving back to what is a more balanced market. This means that homes that shouldn’t sell, because they are overpriced or in poor condition, won’t. You don’t have to just take my word for it, this seems to be the consensus among people that think about these things for a living. While major macro-economic issues could stifle this stability, with interest rates stabilizing under 6% it seems like the housing marketing is here to stay, and more than likely so is most, if not all, of the equity you have gained over the last several years. So what do I do now? I’m glad you asked. First, if you are a buyer, it’s easy to see the good news here. Not only might you not be competing with multiple buyers for a home, but we are also actually starting to see the return of sellers offering closing cost assistance to buyers to entice them to purchase their home. This is HUGE, because it creates the possibility of purchase for large segment of buyers that were simply not cash-laden enough to cover the costs to purchase in the last 24 months. I believe you will start to see many of these buyers, who have been on the sidelines, getting re-engaged in the coming months. While rates have increased notably, closing cost assistance coming from newly-equity-rich sellers may offset much of that additional expense, especially if you consider using some of those funds to buy the rate down to a lower interest rate. Not to mention the real possibility of mortgage assumptions coming back into play. At the risk of sounding self-serving, having a seasoned professional help you navigate the buying process is more important than it has been in a while. If you are a seller, the world has not ended and your home is almost certainly worth more than it was 12 months ago, all other things being equal. BUT the days of giving no thought to the pricing or marketing of your home, or evaluation of your competition, are coming to an end. However, as I mentioned before, well-priced and professionally-marketed homes in good condition are selling in days not weeks. Hint, hint. What’s also good news if you’re a seller, is that the legitimate fear of being unable to find your next home may be starting to wane. Like I said, this is a good thing. With this retraction, it's a great time to take an in depth look at what your options are, what your value is, and what the process might look like, good or bad, if you were considering making a move.