By Holly Henbest, Realtor
Our “crystal ball indicators” from earlier this year suggested that we were heading toward a more balanced market, and sure enough we are heading toward a more balanced market and likely will hit balance in the short term. Over the recent few years, we’ve had extremely low inventory of homes for sale and extremely high buyer demand. We’re now seeing an increase in inventory and waning buyer demand.
Many people want to put the change in demand squarely on the change in interest rates, but there are really several factors, in my opinion, that are contributing to the waning buyer demand.
First and foremost, this has been the first summer since the pandemic to see a significant return to travel and summer vacations. If you’re on social media you’ve probably noticed more pictures than ever of friends traveling to Europe and other faraway places than you’ve seen in years. Our summer months have historically brought us a decline in buyer activity due to the combination of high temps and vacation plans. Not only are people out of town and distracted by vacation plans, but more significantly, fewer people want to look at houses when it’s warm. Who wants to pack boxes and move when it’s 110 degrees outside?
You may be thinking, “but don’t people want to move before school starts?” Let’s bust that myth now. No, that’s not a big factor in people’s moving plans. More often than not, people move within their school district, so moving during the school year isn’t an inconvenience. Again, people who have kids in school want to take summer vacations, so it’s tough to handle a move, all your kids home from school, and vacations during the summer. Once school starts and the kids are back in school, it gives parents an opportunity to think and plan their home and investment goals. We also live in a high demand area for retirees and vacation home buyers and this is not an ideal time of year for them to be here to visit or move. Again, they don’t want to get in and out of a car to look at homes and walk around when it’s so hot, and they certainly don’t want to move when it’s hot. A lot of people put their moving plans on hold over the summer, and the fall is often a reset to make moving plans and getting settled prior to the holidays, so we’ll likely see a bump up in buyer activity in the next few weeks.
Second, there are a lot of buyers who became frustrated with the bidding wars and “frenzy” mentality we experienced over the last year, and their mental fatigue coupled with summer temperatures created a natural time to take a break from their search. We’ve been referring to this as “buyer burnout.” Although those buyers may have tired of the situation at hand, those buyers still have investment and housing goals they wish to attain, and it’s predicted that we’ll see many of those buyers return to the home buying process in the fall.
Third, some buyers may be impacted by the recent increases in interest rates. Overall, interest rates have been increasing recently, and despite seeing some blips of decreases, when the interest rate rises occur, buyers may not be able to afford their desired loan amount were their monthly payment to surpass their budgeted amount. Many buyers are needing to reset their goals. If buyers had been looking for a single-family home with significant upgrades, they may need to consider a home that’s slightly smaller or less upgraded to stay within their budget. You may hear people suggesting a plan to refinance a new loan later. While refinancing might be feasible if rates were to drop possibly and present an opportunity to refinance at a lower rate, our suggestion is that if obtaining a loan to buy, one should consider financing that is comfortably affordable. When the time comes that rates drop and refinancing is pursued, one may be able to increase one’s discretionary income rather than just get relief from a strained budget.
Going forward with the expectation of a more balanced market, regarding home prices, Seller’s should not panic and buyers should not be hopeful that prices will fall. We aren’t seeing a shift in pricing. We are seeing indications that pricing will remain flat or realize minimal increases. With that said, we suggest that sellers shouldn’t expect bidding wars and offers well over asking price. There will still likely be bidding wars and escalated offers in some circumstances, but they won’t be the norm.
Keep in mind that all those homes that sold for over asking price over the last two years reset the sold prices, so the baseline values of homes have increased. For example, if a neighborhood had homes selling at $500,000 a couple years ago and homes listed at $500,000 last year were sold above list price for maybe around $550,000, and then the next round of listings for sale in the neighborhood likely were for around $550,000 with a sale price reaching $600,000, and so on to a list price of $600,000 and sale price of $650,000; going forward we will likely see the same homes with a list price at $650,000 selling for around $650,000, which is still $150,000 more than those homes sold for a short time ago. With stabilized selling prices without a noticeable price drop, but instead with our expectation of a fairly flat to slight increase in selling price, we expect not to see the price escalating at the rate we saw over the last couple of years. It’s important to note that many economists are predicting that we’ll continue to see housing prices go up anywhere between 2.7% to 10.8% nationwide.
The good news for sellers and homeowners is that values remain strong. The good news for buyers is that as inventory has increased you have more property listings from which to choose and less competition in the buyers’ pool, and buyers may make confident decisions without the expectation or pressure of a frenzy.
If you have questions about your home value, investment or moving goals, give us a call at 480-266-8785.
Holly has been a Desert Ridge resident since 2000 and has been a Realtor since 2006. She is the leader of The Henbest Team with Realty One Group. Holly is ranked in the top ½ of 1 percent of Realtors in Arizona and is a certified luxury marketing expert. She has been ranked #24 in the Top 50 Realtors by the “Phoenix Business Journal” for the past several years and recognized by “So Scottsdale!” magazine as a Real Estate Superstar for 2019, 2020 and 2021. She’s also been the #1 ranked realtor at Realty One Group/North Scottsdale for the past several years. Learn more at henbest.com.