In preparation to write this weekly article I read a lot of different information pieces from different sources, some of which I agree with and others with which I might take umbrage. Today’s article falls into this category which I will discuss with the view of what’s happening in real estate in our local market. It has been said that all politics are local, well for our collective interests, all real estate is local.
In an interview with Inman News, Redfin CEO Glenn Kelmen discussed the ongoing inventory shortage. Here in our market, we too are feeling the effects of inventory shortage, which combined with the relatively high cost of mortgage money due to higher interest rates than we had been treated to the last 3+ years has quieted our market. As identified in a previous article, those low interest rates (artificially manipulated for political purposes) have actually hurt buyers now.
Well intentioned as they might have been to help more buyers achieve the American dream of home ownership, there was the rebound effect. Once the Fed quit buying bonds, the mortgage interest rates quickly and steeply climbed from the 2-3% range to where we currently are at around 7%.
By historical standards 7% mortgage interest rates aren’t unholy but when considered with prices that didn’t fall off the edge of the table because of limited inventory; they are high and prohibitive to people trying to get their toehold in real estate.
People who might desire to sell and move, downsize, or perhaps upsize cannot find suitable property to purchase because potential sellers are in the conundrum; “If I sell, then where do I go?” And, oh by the way, having to compete at current prices which were driven up during the COVID years when there was cheap mortgage money available makes it tough.
Okay, so that’s where we are, and Kelmen thinks this will be the least active year in terms of volume since the real estate meltdown of 2008 precipitated by the lender crisis of 2007. If the current trends hold, there will be less than 4 million units sold nationwide during 2023 compared to almost 6 million units sold during a “normal” year. He feels that the only buyers will be those who must move due to job and/or family requirements.
Based on what we are seeing in our local market, I would be inclined to agree as it “feels” like an off year, but checking the numbers of sold units compared to 2008, we are currently on track to close about 66% more than in 2008. By comparison to 2008, we are doing much better in numbers of units sold in 2023.
The ALTOS Report that I reference periodically (market activity indicator) has been hovering between 47 and 52 for the last 4 weeks. Anything above 30 is referred to as a seller’s market while below 30 is felt to be a buyer’s market. On that point I will disagree.
What is the neutral market range? My spider sense is 30-55 is about right to be a neutral market where there is the expectation of negotiation of price and terms. And from the weekly Marketing Meeting, the feedback is “yes; there is negotiation going on in our market.” And negotiation is healthy because it’s equitable to both buyers and sellers. The market that we came out of was truly a slam seller’s market where the only negotiation was how high above list price would the contract price be?
Another article was about Gary Keller; founder of Keller Williams Real Estate, who coined a term he called a “rolling recession” in 2024. He explained that it meant that different segments of different industries in different areas of the country would experience sales slowdowns at different times during the upcoming year. Huh?
Remember that all real estate is local and, oh by the way, different geographical regions will be subject to different social and economic influences which include natural disasters (Maui’s real estate market is certainly impacted by the recent wildfires). Areas near Ft Myers, Florida are still impacted by Hurricane Ian. The closing of large manufacturing plants will impact real estate, and on and on.
So, while Keller may have coined a catchy phrase, I’m not sure that I agree or disagree when I reflect on our real estate market and envision where it’s going in 2024. Heck, we’ve got a lot of real estate transactions to accomplish during the rest of 2023, so we’ll save assessments for 2024 for much later in the year.