My colleague Emily Paquette and her husband Nate suffer from the classic first-time homebuyer splitting headache.
They have been anxiously hunting for their first home in the uber-expensive San Francisco Bay Area housing market for more than a year, where multiple bids, rising prices and an inventory squeeze cause throbbing pain for buyers like the Paquettes.
They had accumulated the savings and earned the income necessary to buy, but an unforgiving market has been fiercely intimidating. Like sending a child to kindergarten, only to see him get taunted and bullied on his first day.
Now a new set of market conditions is making their hike to homeownership even trickier.
Inventory is freeing up, but prices remain sky high and interest rates are climbing.
“WTF — what do we do?” Emily asked me.
Do they push forward or do they wait for prices to slip (a hope and a dream) as rates increase?
“You want to take the plunge, but you also figure what’s the rush?”
There is nothing new about this first-time home buyer mind game, but with shifting market conditions, it’s now even more crazy-making for newbies plopping down their life savings.
The Paquettes are successful millennials who watched the housing market tank on their parents 10 years ago. They are skeptical when pushed by sales people to “go for it, owning a home is always a good investment.”
One thing seems evident, however: the inventory crisis is coming to an end. Like rolled up skinny jeans, a for-sale housing shortage is becoming old news. Buyers have more choices.
Inventory on the rise
“At this time in 2017, we had 1.4 months of inventory and this year 1.9 months — the market is changing but we are still very low on houses for sale in Solano County, California,” said Realtor David Clutts.
Agents across the country are signaling a shift, as a greater supply of inventory comes onto the market. Many more home sellers are ready to unload.
“A month ago, I did not think so, but I checked [the data this week] and the inventory in Massachusetts is higher than the same time last year,” said Boston broker-owner Anthony Lamacchia. “That hasn’t happened in three or four years.”
On an extended road trip to talk to my customers over the last few months — Seattle, San Francisco, Los Angeles, Miami, San Diego, New York and Chicago — I was told over and over that an increased supply of homes is coming on the market, as sellers are finally getting off the proverbial fence.
But like predicting President Trump’s early morning tweets, it is unclear what’s next for the market if supply expands. A return to a normal market? A chill?
Buyers finally catch a break
Or will more transactions happen because a stream of qualified and ready buyers now have more choices? Nothing on the demand side has been sapped except the rising gap between wage growth and price increases, which could shrink with more supply and a growing economy as wages are pushed upwards.
Consider the current “bubble” is one of home prices and limited to certain markets. This is not a problem of too much leverage, sloppy lending or too many flimsy transactions. So a correction will do very little harm, except to some fat and happy homeowners giving up a slice of their equity.
And so it should translate into happy news for buyers.
Southern California agent Jackie Soto says buyers have more options and leverage to get more concessions. “We have more inventory and a higher number of days on the market when the home is not priced aggressively,” she says.
Suddenly, some agents are fretting about TOM (time on the market), as homes do not sell as fast as they have over the past few years.
Are we moving from a sellers to a buyers market? Let’s not get ahead of ourselves.
Looser than it was, but still tight
“For the first time in over two years, price growth in the greater Seattle area last month was not in the double digits,” said Shelley Falk Rossi of Windermere Real Estate. “Instead of 10 offers, there are maybe three. We have barely over a month’s worth of inventory — yes that’s up from a year ago but still ridiculously low.”
Minnesota Realtor and Inman contributor Teresa Boardman sees a shift ahead.
“[We have] more inventory, but if there were twice as many houses on the market, we would still be pretty tight,” Boardman says. “On average, sellers are still getting over 100 percent of their asking price, [but] my gut is telling me there is a change in the wind, something feels different.”
Denver agent Scott Nordby said in this once super-tight market that the number of active listings has mushroomed to 7,000. But in order for the market to be balanced, he said that 27,000 homes should be on the market.
Nordby sees a glut of homes in the $500,000 to $700,000 range and a small decrease in prices with builders suddenly offering incentives, something they have not done for years in Colorado.
Minnesota Re/Max agent Brandon Doyle said, “Price reductions are a thing again. Not every home is attracting multiple offers, and it’s become a lot more important to do appropriate preparation, proper pricing and professional photography.”
Plus, he says, “Buyers are starting to refuse to pay the high prices some sellers have been asking.”
Los Angeles Sotheby’s executive Michael Williamson said, “We have newer agents who have never had to do price reductions, they have no clue how to go about it and how to communicate that situation to sellers.”
And market changes are relative.
Washington state agent Rich Jacobson sums up the trend: “Most definitely, we are experiencing a slowdown overall. Some price points are still brisk, but a shift is underway.”
Now, the industry must dust off some tried and tested strategies to prepare for a new market.