It is not an easy time to comment with certainty on the direction of the housing market. The housing market is a slow-moving ship. Unlike the stock market, we don’t see daily volatility. But let’s be clear –the point is we don’t see it – not that it doesn’t exist. That is because a sale of a property takes up to 60 days – so ‘reading the present market’ amounts to really reading the past.
Volatility in the stock market and uncertain tariff policy are causing home buyers and sellers to question the effect on the housing market. As the Cromford Report points out, volatility in the housing market has been the norm lately: “Fortunately, or unfortunately, volatility in the housing market is nothing new over the last 5 years. From extremely low mortgage rates, high demand, and astronomical appreciation from 2020-2021, to extremely high mortgage rates, falling demand, and depreciation in 2022, to moderately high mortgage rates, low-but-stable demand, and flat appreciation from 2023-2025. Real estate professionals have guided their clients through it all.”
Having sold real estate in the valley since 1978, it is true that we have guided our clients through every market extreme. At the end of the day, we lean heavily on the underlying economic immutable law of supply and demand to provide guidance. So, while the stock market can rise and fall quickly and dramatically, supply and demand take some time to impact the housing numbers. Volatility in the stock market tends to impact the luxury segment, while interest rates impact the mid to low end market that rely on mortgages. The Cromford Report addresses the luxury impact:
“It is becoming clear that the luxury market has lost some of its exuberance over the last 6 weeks, and it appears that week 8 may have been the high point for the year for this segment of the market. It is normal for the luxury market to be negatively influenced by falls in the stock markets and in cryptocurrency, as well as by increases in economic uncertainty. All of these have occurred in recent weeks. The S&P500 entered a downtrend in the latter half of February and is down almost 10% since then. Bitcoin peaked on January 20 and is down almost 23% since then. Stock market and cryptocurrency profits fueled a lot of the unusually high demand in the luxury home market and with those profits down it is unsurprising that demand for luxury homes has fallen.”
While the impact to luxury was predictable, something much less predictable also happened. Typically, when the stock market plunges or the economy moves towards recession, money moves to secure havens such as bonds – causing mortgage rates to drop. This did not happen in April – money did not seem to view bonds as safe – shockingly causing mortgage rates to rise. Mortgage rates greatly impact the mid-market demand. Rates have finally seemed to settle in the last week in the 6.8% range as of this writing.
Despite all this chaos, demand has been subdued but relatively stable for the last few years – a good sign. Conversely, supply has continued to rise in March and April which is very unusual and not a good sign. Here is where the valley currently stands courtesy of the Cromford Report: “The overall Cromford Market Index for all areas & types stands at 78 (a balanced market is 100), firmly in buyer’s market territory and heading south at a slow but steady pace. Supply is still growing and demand is low but steady with a glacial trend upwards. We would need something new to happen to spark a significant improvement in demand. Prices are starting to decline and so are mortgage rates so affordability is on an uptrend. The movement is pretty slow for interest rates but quite sharp for prices. The cooling off at the top of the market has a lot to do with that. However, the top end has almost no effect on the monthly median sales price and that has declined from $465,000 to $445,000 over the past 5 weeks. We deduce that a clear downward trend in home prices has now been established. With the hottest months still in front of us, that is not likely to reverse anytime soon “
To sum the market up – at this point we expect gentle erosion in pricing to continue. Sellers need to price right for an eroding market and address condition issues. Buyers have more power and more choices. Watching the stock market and the mortgage rates will tell you the likely outcome of each market segment. Change is the only constant and knowledge is power. Lean on experienced agents to guide you.
Russell & Wendy Shaw
(mostly Wendy)