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Gary’s Thoughts on the Market – SPECIAL BULLETIN!
Are interest rates affecting the market? YES, THEY ARE!
INITIAL PREFACE:
I watched another Marvel movie with my eldest daughter and her husband last night. Talk about a 5th wheel, but I already digress. If there are a lot of good guys going after 1 bad guy…often the bad guy takes out a number of the good guys but the good guys still win. How does this relate to real estate, you ask? …Seriously? I can relate EVERYTHING to real estate! [2nd digression]
Pretend there are 40 buyers. Now pretend interest rates increased 2.5% over the last few months. Imagine now that only 6 buyers of the 40 may qualify to purchase that house now. The house is still going to sell with multiple offers. BUT! If there are now 10 houses instead of 1…does this change a market? If you’re thoroughly confused, you’re not alone.
In order to understand why interest rates affect the real estate market so strongly, read the PREFACE BELOW:
PREFACE:
*A 1% interest rate hike reduces purchase power by 10%. To apply this general rule of thumb to the average $1.7M Eastside home, this means a $170k reduction in purchase power.
This week, in an interview with Jerome Powell (FED Reserve Chairman), he acknowledged that “While the FED can’t control the SUPPLY issues driving up inflation, the U.S. central bank ‘has a job to do’ to reduce DEMAND.” The Fed is committing to another .5% hike. **In the last 5 months, we have increased from below 3% to over 5.25%. And Chairman Powell says we’re not done yet.
WHAT CAN BUYERS DO?
OPPORTUNITY! While interest rates are increasing, less buyers can afford the higher prices. You’ll find an upcoming trend for homes to sell closer to their list price (either above or below). Less competition means you may get under contract with contingencies that make it feel safer to purchase. One potentially smart play is to purchase your home in the coming year with the idea to refinance after supply-chain issues and workplace balance comes back into equilibrium and the FED reduces rates. Most are in agreement that this is an artificial rate hike. As they said…they can’t control SUPPLY issues, but they can affect DEMAND in order to curb inflation.
ON THE STREET: I regularly consult with brokers in my office and opposite of the transactions that I’m involved in. We’re all seeing many homes stay on the market past their review dates that used to sell just because they were priced fine, and they were “on” the market. Now, if there are 10 homes on the market, the 5 in the best condition and quality sell above list price. The next 2 sell at list price and/or with contingencies (even contingent on buyer’s home selling!) and the final 3 stay on the market for another week or two.
HAVE A HOUSE TO SELL IN ORDER TO BUY?: Depending on what you have versus what you’re looking for, you could find a seller who may accept a contingent offer. Or, there’s 2 options for buying BEFORE you sell: 1. You could use a bridge loan (Windermere has a great one). 2. Windermere has a Cash Buyer program. Your home equity could be the key to scoring a great deal on a different sized house closer in or further out, in a cozy neighborhood, or on some property.
WHAT CAN SELLERS DO?
In the last year, if you take both Median Price and Interest Rate into account… average payments have increased from $4,508 to $6,357 per month, year over year since April, 2021. This represents a 41% increase in payments when making a purchase or $1,849 per month more!
We need to be more strategic about how we price our homes for sale and curb our expectations for “selling amount above the list price”. That said, it’s a balancing act between setting a price that buyers would expect to pay versus scaring them away with over-pricing. Since February, more than 80% the homes for sale on the Eastside have sold above the list price. If 80% of the market is selling above the list price, buyers are already expecting to pay more than the list price. They have been for about 28 months. But this gets tricky as the market adjusts to higher payments for the same priced house.
Inventory is statistically the highest from May through August. There will be more competition. Now, more than ever, it’s important to raise the condition level of your home. As more listings come on the market at that same time as buyers are losing their purchase power, there will be fewer buyers and fewer offers to go around for the listings. If your home is in better condition than your competitors, yours will be the one to get the multiple offers and your neighbor’s home will sit on the market. Buyers will just nod and drive past because it didn’t sell. The only buyers left for their house will be the buyers most focused on price, not value.
A QUICK NOTE TO A NICHE MARKET: If your home happens to be in poor condition, it may not make sense to fix it up, depending on location. If this is the case, just reach out and ask me why. There are some nice options available to you still.
SHOULD WE WORRY ABOUT REAL ESTATE PRICES PLUMMETING?
Ask me for a copy of a great study by Windermere’s chief financial analyst, Matthew Gardner. It illustrates that real estate prices are almost never lower at the end of a recession than they were when they entered the recession. Homes are usually one of the best places to put money during hard times, and their value most often leaps out of a recession once the hard time is over.
*(this is a general rule of thumb…your personal circumstances regarding down payment will come into play specifically)
**No rates are being quoted here. Check with your lender for a current rate quote.
Your personal circumstances should always outweigh what is happening in the market. But, there are often strategies in any market that fit every palate.
If you find yourself in need of personal consultation, please reach out to me. I can be reached at 425-269-8151 and/or gary@garynims.com.
If you don’t know if you need a consultation, remember the wise words of Stephen R. Covey, “If the ladder is not leaning against the right wall, every step we take just gets us to the wrong place faster.” You’ll want to make a good decision when it comes to your most valuable asset.
To your success!
Gary
