We’re in the heart of the spring season, and it’s time for a market update!
The thing that makes this year different from past years is the remarkably low inventory. We haven’t seen this few homes available on the market in over a decade!
Sellers are disincentivized to list their homes, and while there are mechanical reasons why this is the case, we also know this to be true about real estate - folks make decisions with their heart and their gut waaaaay more often than decisions driven by data.
Let’s take a look:
Economists would say that the increase in interest rates is the primary reason why sellers are staying put. Anyone with a low interest rate of 3% or less will have a hard time justifying a move into an interest rate of double that. Unless there is a major life event that is bringing a home seller into the market, most folks are choosing to stay put.
And, while all of that is in play, we also know this to be true: For the same reason that buyers are particularly aggressive and competitive in the start of the calendar year, for the same reason that staging a home really works, and for the same reason that saying goodbye to a home isn’t always logical; people make decisions because of how they feel, and we see that in today’s market.
This month has been a time of uncertainty on many levels. Shakeups in banking - on top of stubborn inflation - makes the recession feel very real. If you haven’t personally been impacted by layoffs, surely you know someone who has.
When times are uncertain, folks tend to seek security. For sellers, that means staying put and not letting go of the one thing they can count on while everything else is uncertain (their home). The fear of more layoffs, the unknown of our economy, and the steady clawback of remote work is pushing people to hunker down and not make any big financial moves. Gone are the days of throwing caution to the wind and selling an asset in the East Bay for a home in Truckee or Bend. Homeowners are nesting in their homes and waiting to see how everything around them settles. As a result, fewer and fewer homeowners are selling, and the number of homes on the market is decreasing.
In contract, buyers are seeking a sliver of security in our otherwise uncertain economy. Those buyers that paused their search last year, when interest rates first ticked up to highs of over 7%, are back in the market. When the cost of everything else around us, including rents, are climbing faster than wages, homeownership offers a fixed housing cost and future security. And, when other investments are less stable, why not invest in home?
But unfortunately, supply has not kept up with demand, so competition for the few available houses has buoyed sales prices for the lucky few sellers in the market.
What do we see on the horizon? If history instructs us, we can anticipate a steady stream of buyers entering the market throughout this year while the number of available listings will remain low. As home sellers start to wake up to appreciating prices, we may see an increase in inventory in the second half of the year to alleviate some of the built up demand. As supply and demand work toward neutral, prices will level off and hopefully pull our market back into balance. But, if there is one thing the past few years has taught us, it’s that no one has a crystal ball!
We’ll continue to track the market and update you all as this year unfolds!