The one thing we can all agree on, buyers, sellers, agents, and even casual observers, is that SOMETHING is changing in the market. It’s often spun that “now is the time to buy!”, and “now is the time to sell!”. Occasionally those messages are advertised, with contradiction, at the same time. I may be one of the few agents that will tell you that now may not be the right time to buy. Now, that is for the average buyer. There are exceptions for cash buyers, contingent buyers, etc, but for the average buyer, we are now starting to see a light at the end of the tunnel. After years of aggressive bidding wars, and double-digit price growth, we are now seeing one-offer sales, and weeks on the market to go pending (instead of days) and softening of prices. I believe this is just the beginning.
There are key factors driving this change in the market. The largest are interest rates. The cost of holding a mortgage, while at historically low rates, has increased, reducing the buying power of consumers looking for lending. Hikes in interest rates are inversely proportional to impacts on home prices, and while it is oversimplified, in general, that puts downward pressure on pricing. Combined with an increase in interest rates, we have rising inflation. While rising inflation can be advantageous for existing mortgage holders, as it decreases the value of debt, for the new buyer it is less so. Instead, it means that the rising costs of goods and services are hitting their overall monthly budget, increasing the cost of living in general. Wages rarely rise at the same time as inflation, so comparatively, the value of income has lagged behind inflation, and put additional pressure on the price a consumer is willing to pay for housing.
Another factor is a very interesting response to limited supply in the market, and an over abundance of buyers: Many buyers were in temporary accommodations, anticipating finding a home to buy. Much of this is anecdotal to my experience with buyers, but I strongly believe that we have seen these temporary renters, through frustration with the market, or simply not being able to find a home, turn to longer term rentals (as evidenced by increasing rental rates). Some have left the market completely. The result is a buyer that has the comfort of stable living that can be choosier with the home they are looking for, instead of making compromises in the face of a bidding war.
So what does this mean for a buyer? It means that now is the beginning of a shift into a buyers market, and we may (barring major changes in the factors I’ve covered, or new variables) experience easing of pressure on prices as we see the crest of the bubble enter the rear view mirror, and we enter a new and evolving balance in the market. What does this mean for a seller? It means that while prices are still at the highest level we’ve seen, that trend will likely not continue. A realistic approach to how long it now takes to sell a home, and appropriate pricing and market response is key to success.
