At the beginning of the year, it seemed there was no end in sight to the meteoric rise of the housing market, with an 'auction-like' frenzy driving roughly 80% of homes to receive multiple offers and go 10-20% over asking price in a matter of hours! For much of the period post-pandemic, the record low mortgage rates, coupled with remote work and the need for more space, drove buyers en masse into a housing market that was already suffering from low supply levels. This has pushed home prices nationwide to record high levels, leaving many prospective home buyers shut out of the market.
Homeowners, on the other hand, didn't have to do much to get their home sold quickly for top dollar, while buyers had to contend with fierce competition and concessions just to have their offers considered. It felt like we were all speeding down the freeway at 120 MPH on an empty tank of gas. It was completely exhilarating and thrilling and exhausting, for sure. And it was absolutely NOT sustainable.
And that is where we are today. With interest rates climbing to over 6%, many buyers have seen their purchasing power greatly diminished. And with the stock market also going for a wild ride amid concerns over inflation and recession, many buyers are seeing the funds for their down payments in flux as well, causing many to hit the pause button, ultimately cooling the housing frenzy down.
And this is a GOOD THING!
This means that sellers can no longer get away with overpricing their homes. Buyers will be able to call more of the shots and bring some more leverage to the table. Homes will take a little bit longer to sell, especially for homes that are not in great shape or back onto a busy road or freeway. And buyers will be able to actually take their time to find the right house, not just whatever house is available.
Of course, homes that look great and are priced well will still be competitive; we saw that even before the pandemic. And with just under 4000 homes on the market, our inventory level is still below the historical average of 8000-9000 homes that we should have on the market at this time of the year. That said, we are seeing the average market time climb from 14 days at the beginning of the year to roughly 40-50 days. Additionally, about 35% of the homes currently on the market have taken price reductions, all signs that we are getting back to NORMAL.
This is not, however, a sign of an impending crash. This is a DECELERATION. Home prices are still up nearly 20% from a year ago, and are expected to climb 8-10% for this year according to the National Association of Realtors, followed by several years of 3-5% annual appreciation. This is very much in line with San Diego's history for the past 50+ years, and is a sign of a return to normalcy after a 3 year frenzy and a nearly 12 year run of a strong seller's market.
Much like that speeding car that went from 120 mph back down to 65 mph, so too did the housing market need to pump the brakes and slow down to a safer speed.
Will it be slowing down? Yes. But it will still be moving forward.
If you have questions, or would like to discuss what a winning strategy looks like in this shifting market, I'm happy to help!
Ehab Ismail | The Hawley Group | Compass | DRE#02034817 | 646.221.2830