Think the U.S. is Alone in Our Economic Woes? Think Again!
When researching the local real estate market, and even the national market, it’s easy to forget that we’re not alone in our current economic woes. In fact, there are many similarities between what’s happening here and in the rest of the world. For example, as recently reported by the Wall Street Journal, real estate developers in China are struggling to attract new buyers. Fears about a recession loom, Covid shutdowns are once again on the rise in large cities like Shanghai, and the demand for homes and apartments is down. That sounds all too familiar here. However, one thing that’s quite different about their market is the incentives being offered by Chinese developers to try and entice buyers. Many have been offering brand new cars and parking spaces as perks to new home buyers. We’d be hard-pressed to get those kinds of incentives in the U.S., but we should start to see more seller concessions being offered! At least we’re not alone in our current economic struggles.
What’s Happening in our Local Market?
Locally, housing inventory is back on the rise after what felt like the most competitive two years to date. Colorado buyers have slowed their frenetic pace, and many have hit the brakes on their home purchases completely. They’re afraid of what the current recession might bring. They’re also being deterred by rising mortgage interest rates and inflation. So, what does this slowdown actually mean for our market, and for home price appreciation in general?
The message we see in the media when something changes in the market is, “change is bad”. The media implies that home prices will tank and that things will spiral out of control. Although that’s not impossible, it’s a very dramatic outlook and one that’s highly likely to be incorrect. One reassuring thing to note is that when experts look at the data, 2022 real estate traffic seems to just be returning to levels seen in 2019, pre-pandemic. If you look at home showing traffic for this year, things seem to be cooling off. However, they’re just falling in line with the stats we saw in summer 2019.
The inventory situation is similar. Purchases are fewer, and inventory is on the rise from the depressed levels it started at this year. On the other hand, we haven’t even caught up to 2019 inventory levels. For perspective, back in 2019 we were already short on inventory, and prices were already on the rise. Even though the 2019 inventory looks high in the chart below, things were already on the scarce side back then.
Historically, the average end-of-June inventory was 15,750 active listings. At the end of this June, we were only at around 6,600 properties for sale. That means demand still well outstrips supply in our market. Due to that fact, home prices are not likely to decrease dramatically like everyone seems to think, but appreciation should slow over the rest of the year. It’s also critical to note that 2021 was a record-setting year for home price appreciation and sales. Just because things are slowing down from 2021, doesn’t mean things are stalling out. They’re just returning to “normal”.
As inventory and interest rates continue to increase, real estate traffic should continue to go down, especially in the fall and winter months. That is normal seasonality. Real estate and mortgage experts are optimistic about these market changes, since the past couple of years have been abnormal, and frankly unsustainable.
The recent increase in inventory is bringing us slightly closer to a more balanced market, but we’re still far from balance. This is still a seller’s market. Yet it is important that sellers realize they might not get as many offers and favorable terms for their homes, and premiums are down. If you overprice your home it will stay on the market longer, and you may have to accept a less-than-ideal offer. We’ve been seeing this much more frequently.
On the buyer side, you may be able to negotiate more concessions than you would have last year, or even get a deal on a property that sits on the market too long, but don’t push your luck! Houses are still in high demand, and you don’t want to get too greedy and miss out on the property you really want by pushing too hard.
As always, feel free to contact us if you have questions or are interested in making a move.