PART ONE: Supply And Demand. What to expect in 2024.
Inventory. Will we ever see more supply?
We are still experiencing a historic lack of supply. Will this improve in 2024?
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Currently, as we are coming to the end of 2023, inventory levels are seasonally low. That’s completely normal. Inventory usually peaks around mid-October, falls until the year changes, and picks up in the Spring.
Our active inventory level, excluding new construction, is currently around 560,000 active listings. For comparison, this week in 2015 (largely seen as the last ‘normal’ market), there were 1,104,514 active listings. (Altos Research)
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There are .5% more homes on the market this week versus the same week last year. There were 58,000 new listings this week, and 10,000 of those homes went pending immediately. That’s good news considering we’re in the slowest time of the year. To see ANY increase in inventory at this point in the year is remarkable and hopefully a trend.
Should we worry about a LOT more inventory wrecking the market and crashing prices?
According to Lawrence Yun (chief economist for NAR): “There are simply not enough homes for sale. The market can easily absorb a doubling of inventory.”
Typically as rates come down (and they’ve come down from a high of 8.1% earlier this year to nearly 7% in the past week), we should see more inventory come online since the typical seller is also a buyer. As rates moderate lower, inventory should climb higher.
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That’s good news about inventory!
What should you watch in your market?
-Watch your MLS hot sheet daily and see ‘what’s hot and what’s not’
-Is the inventory rising or falling in each area you work?
-What price ranges are seeing the most price reductions?
-Where is all the inventory? Certain zip codes and/or prices?
-Are the Average Days on the Market going up or down?
-What is the list-to-sell price ratio in the areas you work?
-What are the builders doing to promote their inventory?
Demand
Demographic Demand.
The demand from the millennials and upcoming Generation Z buyers together make up a population larger than the entire country of Japan. It’s not a small amount of people.
The oldest of the millennial generation are now in their early 40s, and the average age of first-time buyers is currently 36. How many of them have been sitting out the market, building up their downpayment, and waiting for rates to slide into the 6’s? That’s a lot of pent-up demand just waiting to pounce.
Baby Boomers are still aging out of their homes, downsizing, paying cash, and entering into assisted living care facilities. Many of today’s transactions are fueled by the Boomers.
If you add the inventory from the Boomers and the demand of the Millennials and Generation Z, rates come down and then we’re right back to a hot market.
It’s too soon to tell, but demographics are certainly on our side, and a good reason to see home prices continue to increase.
The transactions our coaching clients report are reflective of these trends. Additionally, there will always be buyers and sellers who are relocating, divorcing, and inheriting property. Add to this the amount of first-time buyers and you have demand which outstrips supply at a rate of 3 to 1 as of today. 3 offers for every sale. We could triple inventory and it still wouldn’t be a ‘buyers market’.
That’s good news, especially if you’re primarily a listing agent.
What should you be doing now?
-Proactively speak with 100% of the people in your database to find out who is a first-time buyer or has first-time buyer kids, who are relocating, downsizing, wanting to build, or divorcing.
-Connect with your past clients and Center of Influence before someone else does, and before they buy the Open House they’re going to this weekend or sign with the build rep in the development they’ve been haunting every weekend!
-Speak with at least 10 Expired Sellers and let them know there is still demand and find out if they still HAVE TO sell. See if you can help them accomplish their goals this time around. They may also buy with you!
What About Price Reductions? Doesn’t that mean prices are crashing?
Some argue that seeing so many price reductions must mean that prices are crashing, however, price reductions are only marginally higher than historical norms.
Historically, about 30% of all homes for sale will reduce their price before they actually go pending. When mortgage interest rates rise and demand decreases, the percentage of homes for sale that reduce their prices will increase. This explains why you’re seeing more reductions now than you did during the crazy pandemic market with those low-interest rates.
Interestingly, in 2023, with higher prices and higher rates at the same time, the percentage of price reductions has been LOWER than what happened in 2022. In 2022, 43% of homes for sale had to reduce their price versus only 39% this year. This indicates that yes, sellers still start out higher than the market expects, but this is moderating and moving back towards norms.
Don’t freak out over price reductions. Do work to price it right in the first place. Refer to our many podcasts regarding price strategies.
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