You may be wondering where your traditional Spring real estate market is. What’s happening right now, what can you expect for the rest of this quarter and this year, and what should you keep a close eye on?
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Today we’ll talk about interest rates, inventory levels, price trends, price cuts, and new construction. When you have the facts on these key indicators, it will help you make good business decisions. Knowledge gives you the confidence to speak with more prospects more frequently, which will result in more opportunities.
We will also discuss the action steps to take once you’re equipped with these facts.
1. Mortgage Interest rates. After spiking to nearly 8% in February, rates are currently hovering around 6.4%. Are we going to get stuck here or can we look forward to further reductions?
Business Insider reports that most economists and analysts expect rates to fall to around 6% somewhere around the middle of the year. If inflation continues to stabilize, we should see one or two adjustments down this year.
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The MBA (Mortgage Bankers Association) forecast agrees that 30 year mortgage rates should fall to somewhere between 6.1 and 6.90% during 2024. NAR says 6.1 to 6.8% and Fannie Mae predicts that rates will dip to 5.9% by year’s end.
Should buyers wait? It’s not a great strategy when you consider that waiting will mean paying a higher purchase price, a higher down payment and possibly guarantee a bidding war. The lower the rates go, the more mortgage applications are reported. This means more competition. If a buyer is highly motivated and qualified, the move is to buy now and refinance later. Many lenders are offering free refinances for 6 months or a year after closing.
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In January of 2021, rates hit an all-time low of just 2.65%. This is extremely unlikely to ever happen again, since it was as a result of the government’s response to Covid, driving the federal funds rate to near zero and stimulating the feeding frenzy in the housing market that many of you lived through. THAT was NOT ‘normal’!
Remember that no matter what the interest rate is, a saavy buyer can always buy down and lock in a lower interest rate, use an adjustable rate mortgage or simply refinance when rates drop.
2. Inventory. Currently, there are about 500,000 single-family homes on the market as active listings. This is up a half percent week over week, and up 21% from last year, so things are going in the right direction. That amounts to about 100,000 more active listings versus this time last year. According to Altos Research, if this trend continues, by mid-year we’ll be up by about 40% year over year.
It’s important to watch not just the total number of available homes for sale, but what the mixture is. For example, nearly 60,000 listings were new this week but did NOT sell right away. This is a trend toward more days on the market and will cause overall inventory to steadily inch up.
3. Doesn’t that mean we’re headed for a flurry of price reductions? There is no expectation of a crashing price phenomenon. Prices have already gone up by 5% this year in many areas, and there is enough buyer demand even with higher interest rates. The median price of single-family homes in the US is $432,000. Historically, this time of year is the highest seasonally, though that may change when rates adjust downward in the summer.
That said, if you’re in a market where you’re surrounded by oceans and oceans of new construction, you may be seeing more price reductions and less appreciation.
It’s also valuable to note that in a ‘normal’ market where the supply and demand is in balance (1 buyer for each listing), typically, 30% of active listings have at least one price adjustment before they actually sell. Last week, according to Altos Research, sure enough, 30.5% of the active inventory took a price cut.
4. New Construction. From Census.gov: Single‐family housing permits in January were at a rate of 1,015,000; this is 1.6 percent above the revised December figure of 999,000. Authorizations of units in buildings with five units or more were at a rate of 405,000 in January.
Typically, new construction has been about 12% of the market, but is currently running more than 30% of what’s available.
According to Zonda Research, 40% of home buyers state that the top reason they buy new was to avoid renovation and inspection problems, followed by the #2 reason, lack of inventory, and third, because they were attracted to customizing the features and design of the new home. Add to this the fact that many builders are offering sales incentives of up to $20,000 towards closing costs or rate buydowns, it’s definitely a great option.
It’s also worth noting that builders have changed their strategy in some markets to build townhomes or mid-rise condos to meet the demand of the first time buyer price segment. They’re changing their product mix, floorplans and options to meet the demand, build more homes faster and still maintain their desired profit margins.
What to DO about all of this?? Action Steps.
1. You must be an inventory specialist. Yes, inventory is increasing, but there are still 3 offers for every home for sale. Until this changes, assume you’ll have to get more creative with your MLS searches, know about new construction, and mine your own database for potential sellers.
2. Drill down on what your buyers want and see if there is a new construction match for them. Maybe they need to consider a townhome or look in a different zip code.
3. Be the listing agent. If you’re not calling Unrepresented Owners, Probate and Divorce Attorneys, and Expired sellers daily, you will stay on the buyer hamster wheel forever. The problem with this is the longer you take to find something for your buyers, the less faith they have in you. The listing agent always wins!
4. Get involved in coaching so you find the direction you need to succeed in this challenging, inventory-starved, higher-interest rate market. Yes, things are improving, but slowly. Waiting isn’t a strategy. You’ve got to take action now and get the support you need to achieve your goals this year.
