Home sales this fall will likely be sluggish. Not because there is no demand but because there remains a limited supply. There’s no denying the cost of homes has been relentlessly going up for years. There has been speculation this is leading to a housing bubble but there is ample evidence this is not occurring. Most notably, the fact that people are talking about a housing bubble means they are becoming skeptical that prices and values are not aligned. People are rightfully leery about making an expensive bad investment. Second, a bubble is characterized by hordes of people buying in a rising market just because everyone else is doing the same. What’s notable about this market is there are hot spots in some real estate markets but not in all markets.
Despite rising prices, buyers generally remain conservative. A large part of this is due to the fact that available financing remains conservative. Exotic mortgages, lax underwriting, and no equity, which allowed people to take on more debt than they could afford, drove the bubble that burst in 2006. The opposite is true today. The majority of mortgages are only available to those with reasonable down payments and stellar credit ratings.
There may be a correction but that doesn’t mean a bubble is about to burst. The hot markets are seeing bidding wars going to those with a substantial down payment or even all cash offers. That means people have skin in the game and financial resources to back up the purchase. Unfortunately it is leaving those without ample resources out in the cold.
Sellers setting unreasonably high prices aren’t receiving offers in most markets. Millennials are getting into the buyer’s market. What are still selling exceptionally fast are entry-level priced properties in walkable distances or close to metro areas. The further out from metro areas, the longer the houses are generally staying on the market.
The trend favors sellers that price houses to meet the current market. The demand is real and those coming on the market at the right price point with a house in good condition typically sell within 10 days. Houses slightly above the correct price point that don’t sell within 10 days often languish for 45 days or longer. Houses not selling within 45 days go for months without serious offers and fall well outside the 4 month or less inventory supply that the market has become accustomed to.
Sellers that used the summer months to spruce up their house before putting it on the market or have other reasons to sell this fall need to pay attention to the current price point or risk having their homes sit idle on the market going into the slow holiday season. Something sellers don’t want to do is find themselves putting up “Price Reduced” signs just before the holidays. The holiday season is particularly slow, it brings out the bargain hunters that will only make low-ball offers on stale properties that have been on the market for months.
Price growth did continue as expected during the summer but at a slower pace than over the past couple of years. Already high prices coupled with conservative financing conditions and buyer awareness are key to the market edging into a correction rather than a bubble. Some potential buyers are already back on the sidelines, which will result in slower price growth the remainder of this year.
Please leave a comment about conditions in your local market or if you have questions/comments about this article.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.