I think it’s safe to say that anyone looking to buy or sell real estate wants a good deal. Buyers want assurance that they are paying fair value for a property. Sellers want confidence that they are maximizing their profit.
The ability to fairly negotiate terms is significantly impacted by market conditions. When the scale is tilted too far in either direction, the terms naturally favor one party.
Everyone wants to time the market for when conditions will best favor their situation.
Spoiler alert… it is not possible to perfectly time the market! Anyone who tells you differently is not being completely honest with you… unless they perhaps have a magic crystal ball!
Keep reading for my thoughts on this topic!
How’s the Market?
One of the many aspects of my job involves consultations. I have conversations with those considering a purchase in the near future, preparing their home for sale, researching investment opportunities, or simply looking to stay informed about their local market.
The most frequent question I am asked is ‘How’s the market?’.
This is almost always followed by, ‘Do you have any idea when it will change?’
The interesting thing is that the follow up question comes regardless of the current market conditions.
The fluctuation of supply and demand, along with the many economic and world events, keeps us on our toes.
Imagine a group of kids on the playground playing double dutch jump rope. The jumper stands patiently watching each rope spin… waiting… trying to choose the exact right moment to jump in. They are trusting that all the outside factors and the kids turning the ropes stay exactly steady so they can nail their entrance. The longer they take… time passes by… they begin to overthink… and they perhaps are more likely to trip up OR miss out on a lot of fun!
How Long Will you Wait?
While you are hyper focused waiting for that perfect moment, there are other outside factors shifting around that you may not be considering.
For example, when the interest rates were super low, one may assume this was nothing but a celebratory time for home Buyers. However, the low rates coupled with the low inventory turned the housing market into the wild west! Buyers were thrilled with their amazing buying power, but they were also frustrated with the lack of inventory and intense competition.
For Sellers who are ready for a move, you may think they all took advantage of the increasing values. The challenge I saw was that some homeowners who wanted to take advantage of the strong Sellers market could not because they didn’t have anywhere to go!
My point is that if you are waiting for a perfect moment, you may be waiting awhile. When one factor might be great (ie. low interest rates), another factor could create challenges (ie. bidding wars).
The key to real estate success at any given time is understanding the current market conditions and being willing to adjust both your mindset and strategy accordingly. Sometimes we have to think beyond the traditional path!
I am not suggesting that this very second is the right moment for everyone. Your move of course depends on your individual situation. It is important to watch the market trends and make educated decisions for your personal goals.
In order to make educated decisions, it’s important to refresh our minds on how supply and demand benefits Buyers and Sellers…
When is it a Sellers Market?
Low Inventory = Sellers Market
When there are not enough homes for sale to meet the amount of buyers searching, we see buyers compete for those desirable properties. Sellers may receive multiple strong offers within the first week or two of listing.
Analyzing Inventory:
We analyze the housing inventory by looking at the data from the previous month. We take the number of Active homes listed for sale divided by how many homes Pended (went under contract).
This tells us the number of months it would take for the current inventory of homes to sell given the current sales pace. Having around a 5-6 month supply is considered balanced. When that supply drops below 5-6 months, we enter into a market that favors a Seller.
When is it a Buyers Market?
High Inventory = Buyers Market
When there is a surplus of properties available for sale, Sellers are put in a position where they need to compete for Buyers attention. We use the same analysis as described above. When we have more than a 6 months supply, it shows that we have more houses for sale than needed to meet the Buyer demand.
In this type of environment, Buyers typically have more opportunities to negotiate terms. The overall pace tends to feel a bit slower as Buyers don’t feel rushed to act quickly.
Check out the chart below that shows the national housing inventory levels over the past 25 years. It’s a helpful visual to understand how the market shifts back and forth from a Sellers Market to a Buyers Market. Inventory in recent years has dropped so low, that it’s going to take time (likely years) to come back to a more balanced level.
source: tradingeconomics.com
can we Predict when the market will shift?
Professionals are continuously analyzing data and providing educated predictions and recommendations, but no one can pin point an exact moment when the conditions will be perfect for a particular consumer.
Remember that there are many unexpected factors outside of any economic expert’s charts and spreadsheets that can impact the market at any time (ie. pandemic, political events, international tensions). It’s important to remember this and to be flexible.
Professional predictions are based on historical trends, but should not be taken as absolute guaranteed facts. Understand that it’s ALWAYS a good time to buy, sell, or invest in real estate! You simply need to be open minded, creative, and adjust with the changes.
My Crystal Ball Says…
As of this writing (February 2023), we are in a bit of an unusual place. The mortgage interest rates have corrected to more appropriate levels after years of historic lows. However, for a variety of reasons, the inventory is still extremely low in many communities.
As long as inventory remains low, the high demand and competition will keep pressure on prices.
Depending on the economic health of the country, we may see rates begin to drop a bit as we move into the summer months. Various experts expect the rates to stabilize below 6% in 2023.
The shift back toward a Buyers market is coming, but it may take awhile… possibly a few years.
The timing may not always be perfect or ideal, but if you adjust your approach to meet the current market, the opportunity for positive experiences and investments are always there.
Stop trying to ‘time the market’ and start discussing how to capitalize on the current market!
Reach out to your real estate advisor to request a market update for your local area. If you live in PA or NJ, in the Greater Philadelphia Region, I am happy to send you some data to review!
CONTACT ME: emily.woods@veryre.com