Hello there, it’s me, Steven Thomas, with ReportsOnHousing.com.There is a noticeable shift in housing as buyers are starting to approach the market with caution. The housing market is like a big game of tug-of-war between buyers and sellers. Sellers have been dominating since 2012 with multiple offers and buyers tripping over themselves to be the winning bidder. As a result, prices have escalated and reached record levels. There is change in the air, and now buyers are beginning to pull back. In the tug-of-war, sellers are still “winning,” but not if they are overpriced. Sellers are no longer getting away with arbitrarily stretching their asking prices. Buyers are approaching housing a bit different than they did from 2012 through 2017. They are much more cautious. Why the caution?
The biggest culprits are interest rates and values. Values have increased significantly. The median sales price was up nearly 6% from April 2017 to April 2018. Remember, it has been a hot seller’s market dating back to 2012, six solid years of home price appreciation. From 2012 to 2018, the median has risen by an astounding 73%. At the end of May 2017, interest rates were at 3.95%. They are at 4.66% today, an 18% increase in a year. With higher values and higher mortgage rates, buyers still want to buy; but, they are getting to the point that they just do not want to pay much more than the most recent comparable sale. As a result, they are tugging the rope harder. The numbers illustrate how buyers are pulling back by simply comparing the current market to last year. The overall active inventory is up by 3% year-over-year. For 20-months straight, the inventory was less than the prior year… that is, until May of this year. From May on, the inventory has been GREATER than the prior year. Demand, the number of pending sales over the prior month, is DOWN by 9% year-over-year. That is a significant difference. With a higher inventory and softer demand, the market feels a bit more sluggish than before. While it may still be a seller’s market, pricing has become increasingly crucial in order to find success. The word from the real estate trenches is clear: buyers are approaching housing very carefully and sellers are wondering what happened to the HOT SELLER’s market that everybody has been talking about for years. Sellers who are not priced extremely close to their Fair Market Values are not finding success. A huge indicator that overpricing is rampant can be found in the number of price reductions. Currently, 13% of the active inventory is reducing their asking price every single week.
The bottom line is clear: it may still be a seller’s market, but sellers must carefully price their homes in order to be successful in this evolving market. In the tug-of-war between buyers and sellers, buyers are starting to pull back. For the latest Orange County housing pulse, subscribe to my report. I am Steven Thomas with ReportsOnHousing.com.