Why Does Balanced Market Feel Unbalanced?
The valley’s real estate market has been stuck in neutral for a while. Both buyers and sellers have largely been staying on the sidelines and often for the same reason – interest rates. Sellers wanting to move, swallow hard when considering giving up their 3% mortgage for a 7+% replacement rate. Buyers look at their decreased buying power when rates are elevated. This results in a low volume market (i.e. fewer transactions). Finally, August 5th, the long awaited drop in interest rates happened when rates fell to the 6.5% range. While that won’t impress sellers holding 3% mortgages – it is a full percent below April’s rates of 7.5%. Buyers should know that a 1% drop in rates affects their payment comparable to a 10% drop in the home price. But the psychology of money is a funny thing – the drop in rates increased the number of mortgage applications only by a measly 1%. Why? When rates drop, buyers don’t always act immediately – in hopes they will fall further.
For sellers trying to sell in this market, this balanced market of low supply and low demand, feels decidedly unbalanced. Why? The fact is that our market spends far more time in a seller’s market than a buyer’s market. As the Cromford Market Report explains: “Over the past 24 years, we have tended to be mostly in a seller’s market and when we are not, we often have a buyer’s market. In buyer’s markets DOM (days on market) values get very high, even well into the hundreds of days. Since we are rarely in a balanced market, sellers experiencing them tend to think they are worse than balanced, because they feel “worse than normal”. They ARE worse than normal because a normal market is unbalanced in favor of sellers. Balance and normal are not the same thing.”
For sellers, until our market comes out of the stalemate, expect longer marketing times with fewer offers. Prepare to pay concessions as over 55% of sellers are currently doing. For buyers, waiting for lower rates may not be your best strategy. When and if rates drop, competition for homes will jump. Right now with buyers thin on the ground, you may have better bargaining power. This is when agents can prove their value in good negotiation and expert market analysis.
Russell & Wendy Shaw
(Mostly Wendy)