As I write this letter, I just learned that my clients lost out on a Rockridge home listed at $1.8 million. They offered $2.5 million and were third in line. Yet, change is happening. In my January newsletter, I highlighted a factor that would soften the competition for housing … a stock market correction. It should come as no surprise then when I tell you that the rate of rising home values is slowing. Let me start by stating the obvious … if you are a current homeowner thinking about selling, you will probably need to adjust your expectation of what your home is worth. If you are a prospective buyer, rising borrowing costs mean that you can afford less. What is not so obvious is how buyers and sellers may need to modify their strategies to succeed in this rapidly changing environment.
In my experience, when the economy contracts, homes on the fringes are impacted first. This would include properties in marginal locations and those with unconventional floorplans and/or substantive deferred maintenance. It might seem counterintuitive to prospective sellers, but as the market slows, a seller should consider investing more to make their home stand out. The customary painting, staging and landscaping may need to be augmented with correcting some of the deferred maintenance identified in the Home Inspection Report. I might advise updating a kitchen, bath and/or lighting to reflect current tastes. The reason for investing more when you are being told to expect less is that buyers in a less competitive market will be more selective and therefore more focused on the details. Homes that are in impeccable condition and desirable locations (“walk-to-coffee” neighborhoods are back in vogue) will continue to vastly outperform the rest of the competition… even more so in a slowing market.
Prospective buyers who have been squeezed on all ends by the unprecedented rise in property prices, higher interest rates and lower stock market returns will find a silver lining in more available properties for sale. I’m not suggesting that they will find lower prices, but they may enjoy a stronger negotiating position. And even though I have not seen this yet, it’s possible we may see list prices begin to move closer to expected selling prices as agents start to anticipate fewer offers. If you have been unsuccessful at securing a home, try searching for properties that have been on the market over 15 days. You may find an opportunity to present a clean quick offer with little to no competition.
Although it is human nature to attempt to predict what will happen in the months ahead, I always come back to what I know to be fact. In the first quarter of this year, the median price in our area jumped 23% and my average sale received 12 offers after 8 days on the market. This is not sustainable. In the most recent quarter, my average sale dropped to 5 offers and 10 days on the market. With a lag between data on closed sales and new escrows, the trends may be even more pronounced. Yet, it is important to put things into context… homeowners have realized unprecedented returns, especially during the first two years of the pandemic. We continue to have too few homes available to purchase. However, there is no guarantee that the trend will continue. If you have been on the fence waiting for a window of opportunity to jump in, the window may finally be here.
Please don’t hesitate to contact me for advice in navigating today’s housing market.