Real Estate Round-Up: For the times, they are a-changin'
Last updated 5/11/2022 at 5:54pm
Come gather ‘round people, wherever you roam
And admit that the waters around you have grown
And accept it that soon you’ll be drenched to the bone
It your time to you is worth saving
Then you better start swimming’ or you’ll sink like a stone
For the times, they are a-changin’
Bob Dylan, 1964
Over the past two years we have repeatedly been asked, how long will this boom last? How high will prices go? Well, there are many indications that we are starting to see the end of the boom.
For the first time in years, I am regularly seeing price reductions. Buyers are prepared to keep looking rather than purchase a home they simply don’t love. Interest rates continue to climb, which is having a major impact on buyers of homes under $900,000, which has a ripple-up effect on the sellers of those homes, which impacts their ability to trade up. If first time home buyers can’t enter the housing market, the entire succession of home buyers and sellers are stalled by this. Buyer A can’t afford to buy seller A’s home, so seller A can’t become buyer B and afford to buy seller B’s home, and so it goes.
As a Realtor, I get daily, sometimes multiple times a day, notifications of new listings and price changes on current active listings. Sellers are starting to adjust their selling price with many of the price reductions as much as $100,000. Whoa Nellie. One hundred thousand dollars sounds drastic and extreme, but if this indicator is something to pay attention to, those sellers are being very smart about this adjustment.
A cautious seller would creep their way down on price, but that generally puts them behind the curve with a strategy that chases the market down, while never actually getting ahead of the decline. The savvy seller will take that $100,000 price reduction, to get in front of the declining market, and get their home sold while they still can get close to what they originally hoped for.
We met with a client today, who just didn’t want to address the issue of price. Arrogance or pride can get in the way of doing the smart thing. It’s always easiest to blame the Realtor or find fault with the buyers, but the truth is, the market is changing. Buyers are feeling the pinch. Even if they are paying cash, inflation and stock market decline are impacting everyone. Overpaying at a time when the market seems to be adjusting, just doesn’t make sense.
The smart buyers are offering a reasonable amount for a home, not the over-the-top prices of just six months ago. Smart sellers are listening to their Realtor and adjusting their selling price to reflect what’s occurring in the market. They are getting out in front of it so they “finish” the race rather than be left stranded in the starting blocks.
Buyers are not only hesitant to overpay for a property, they are expecting the property to be pretty much “turn-key.” If it’s not, the discount they want is far greater than the actual cost to make the improvement because it takes into consideration the discomfort they will have to endure, when they do the improvement themselves, rather than moving into a “move-in” ready home.
The improvements they want are not only interior upgrades, but exterior maintenance and upkeep. Buyers want to believe that a home is easy to maintain. All of us, who live on more than an acre of property, know that it is less than easy to maintain, unless of course, you have turned it into scorched earth and stopped watering.
If, however, the property is beautifully landscaped with mature plants and/or groves, it will attract a higher-quality buyer, who also will believe that it is a property that is able to be maintained. The flip side is seeing a property that is not maintained, which will draw a lower purchase price due the buyers’ expectation of higher maintenance costs to bring the property up to snuff and keep it there.
Lastly, interest rates are impacting every buyer. Buyers of property under $900,000 are the first ones to feel the hit from higher interest rates. Their qualifying payment has been greatly impacted by the rate increase of more than 4.5%. We recently had buyers of one of our listings move from conventional financing to FHA financing because they could no longer meet the underwriting guideline of conventional financing with the higher interest rate.
That kind of change could have derailed the purchase. The buyer’s Realtor and lender faced the challenge head-on and immediately ordered a new appraisal (yes, even though the appraisal was less than 10 days old, FHA requires a new FHA appraisal), submitted the buyer’s file to underwriting and were able to close a mere four days late. That’s a tribute to the Realtor and lender. In the hands of a less-experienced team, the transaction could have fallen apart. But with interest rate increases, there will be hurdles, which either due to lack of experience or height of the hurdle, might not be able to be overcome.
Friends, the times they are a-changin’. Don’t lose hope, but don’t drag your feet, get with your Realtor, or get with us, and we will help you finish the race even though the hurdles are high.
Kim Murphy can be reached at [email protected] or 760-415-9292 or at 130 N Main Avenue, in Fallbrook. Her broker license is #01229921, and she is on the board of directors for the California Association of Realtors.