PURCHASES ARE DOWN…IS THE SKY FALLING?
Locally, housing inventory is back on the rise after what felt like the most competitive two years. Colorado buyers have slowed their frenetic pace, and many have completely hit the brakes on their home purchases. They are afraid of the current recession and how bad things may get. Rising mortgage interest rates and inflation are also deterring them. But what does this slowdown mean for our market and home price appreciation generally?
HOME SHOWING TRAFFIC
The message we see in the media when something changes in the market is, “change is bad.” They act like home prices are going to tank and that things will spiral out of control. Although that is not impossible, it is a bleak outlook (generally incorrect). One reassuring thing to note is that when experts look at the data, 2022 real estate traffic seems to be returning to levels seen in 2019, pre-pandemic. So, if you look at home showing the traffic this year, things are cooling off. But, they are just falling in line with stats we saw in the summer of 2019.
The inventory situation is similar. Purchases are fewer, and inventory is rising from the depressed levels it started this year. But we have not even caught up to 2019 inventory levels. For perspective, back in 2019, we were already short on inventory, and prices were already rising. So even though the 2019 inventory looks high in this chart, things were already on the short side.
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 is 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 does not mean things are stalling out. They are just returning to “normal.”
As inventory and interest rates increase, traffic should decrease, especially in the fall and winter months. That is normal seasonality. Real estate and mortgage experts I talk to are optimistic about these market changes since the past couple of years have been abnormal and unsustainable.
BUYERS AND SELLERS – WHAT TO EXPECT
The recent increase in inventory is bringing us slightly closer to a more balanced market, but we are still way off from that. This is still a seller’s market. But sellers must realize they might not get as many home offers, and premiums are down a bit. If you overprice your home, it will stay on the market longer, and you may have to accept a less-than-ideal offer after a price reduction. It has been happening more lately.
On the buyer side, you may be able to negotiate slightly more concessions than you would have last year or get a deal on a property that sat on the market too long, but do not push your luck! Houses are still in high demand, and you do not want to get too greedy and miss out on the property you wish to by asking for too much slack.