Understanding today’s real estate market gives me the creeps.
On the one hand, sales are down because there is insufficient inventory. Another source reports that more buyers are priced out of the market, and a third report says sellers are getting multiple offers. Then we learn that Home prices are dropping but could rebound significantly when interest rates drop.
Unless the bottom falls out within the next few months, as some predict, 2024 could be a good year for housing. The demand for housing is not going away for years to come.
Understanding the national housing market is critically important to vendors and lenders. But it is the local market that matters. If we are not careful, news about the housing market can creep up on our attitudes and create analysis paralysis.
It is a good time to remember that real estate is LOCAL. In its simplest form, the real estate market is whatever is going on in a specific market. Realtors in Orlando, for example, are not impacted by what may be happening in Topeka, Kansas. And vice versa.
Angela Langone, a Redfin agent in San Jose, said in a recent Redfin report that there aren’t enough homes, with multiple offers on the most saleable homes. Both new listings and pending sales are down more than 40% from a year ago in San Jose. It’s not that there are no buyers or so few sellers.
But don’t try to tell Redfin agent Jennifer Bowers that inventory is tight in Nashville. She credits new construction for making the difference.
“There are a lot of new homes on the market in the suburbs that offer such good incentives that resale owners cannot compete,” Bowers said.
“Inventory is not a major problem here because the greater Nashville area is so sprawling, and there are a lot of newly built homes in the suburbs.
“Builders went big in the city’s outskirts over the last few years, and now they offer incentives to attract buyers to the point where individual sellers are having a hard time competing.
“For buyers willing to stray from the city center, there are plenty of homes for sale,” Bowers said.
Realtors in markets where resales compete with new construction need to start qualifying their resale shoppers for new construction. If they don’t, they may lose sales they could have made.
“For the fourth straight month, builder confidence has increased due to a lack of resale inventory despite elevated interest rates,” said NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala. “Builders note that further declines in mortgage rates, to below 6%, will increase demand for housing.
Builder confidence is on the rise. Historically, new construction inventory represented ten percent of all inventories, and today new construction represents 33 1/3 percent of available inventory.
"Currently, one-third of housing inventory is new construction, compared to historical norms of a little more than 10%," said Robert Dietz, NAHB chief economist.‘ Dietz said that more buyers are looking at new homes using incentives.
Real estate is local. Keep it local. Keep on top of what’s going on in your part of town.
One can understand why Realtors in small markets or markets where home building is not a factor drop out. There needs to be more inventory to make a living.
On the other hand, a larger percentage of agents should be showing new homes. According to NAR, year after year, the percentage of new homes sold by realtors hovers around an average of 65 percent.
Mortgage lenders and homebuilders are responding to the market. Mortgage buydowns are being offered to resale buyers. You can depend on homebuilders to offer incentives and mortgage rates home sellers cannot touch if the housing market goes into a serious slump.
Let’s go back to 1980 when mortgage interest rates were 20 percent.
Four of Florida’s major condominium developers were discussing the real estate market. Yours truly was in this meeting.
"We will never see single-rate mortgage rates again.” They were wrong.
“The market will ‘price in’ when interest rates adjust to twelve percent.” They were right.
In the meantime, builders did something resale homeowners could not do: Builders brought the rate down six points to twelve percent.
Some pundits predict that sales will re-energize when mortgage rates drop below six percent.
Signs suggest the Fed is near the end of its tightening cycle, which sets the single-family housing sector on the path toward a rebound later this year and an increase in 2024, according to reports.
Lowering interest rates would be good news. But a ‘price rebound’ is sure to follow.
“Buyers sitting on the sidelines today in anticipation of lower prices tomorrow may end up disappointed,” says Neda Nava, president of the U.S. region at Compass, a real estate tech company, referring to the possible price rebound.
Five recommended actions:
- 1. Focus on what is going on in your market. Where homebuilders are a factor, you will always have a saleable inventory.
- 2. Start qualifying your resale shoppers for new homes. You will be surprised how many resale shoppers are willing to visit a new home model. Let the onsite agent do the talking.
- 3. If you are a broker, find a new home co-broker course to recommend. There are some good ones out there.
- 4. Pay more attention to your local news. Listen and learn about what is going on in your market. Especially the new construction market.
- 5. Pray for wisdom!
A last thought: No matter the interest rates, the need for housing will remain strong for years. You can depend on home builders and lenders to figure it out and meet the demand, come what may. They always do.
