Is the Real Estate Market Softening?

There’s been a lot of chatter recently about the state of the real estate market:  Is the market softening? Is the bubble about to burst? Are we seeing the first signs of another recession? Incredibly curious to see some hard facts myself, I dug in… Read on to hear more about my observations…

The indicators of a slowing market are:

  • An increase in the number of Active listings
  • Houses sit on the market longer (“DOM” or “days on market” increases)
  • Price reductions occur
  • Contingent offers are more common
  • Fewer offers are non-contingent
  • Buyers asking for more, with some sellers agreeing
  • Some buyers in “wait and see” mode

On the one hand, we are certainly seeing this happening in certain segments of the market.  For instance, condos in South Beach/SOMA can sit on the market for 45 days or more.

In just the past two months, I’ve represented buyers in home purchases where the sellers agreed to take care of all pest repairs and even installed an entirely new roof.  In more than one transaction, we were the only offer.  And it seems that every day, I receive at least one (if not more) alerts about price reductions.  I rarely, if ever, saw any of these things happening in 2017.

In addition, interest rates have risen more than a full point in the last year, which means some homebuyers can no longer afford to purchase a home.  Therefore, the pool of buyers may be smaller than it was a year ago.

For example, interest rates rose from 3.5% a year ago to 4.5%+ this year.  Buyers who could afford a $1 million home a year ago can now afford $905,000.  Even with a wage increase this year, the combination of price appreciation and increasing interest rates outpace wage growth.  With the average home price in San Francisco at $1,524,029 in September 2018, I am certain the buyer pool has been impacted.

On the other hand, my study of the numbers don’t seem to suggest much change quite yet.

  • The number of new listings in San Francisco was down 9.9% in September (YOY) (i.e., less inventory).
  • Active listings were also down 2.9% (YOY).
  • Average sales price is up 7.7% (YOY).
  • Days on market is down 22.9% (i.e., homes are selling faster).

So while we may be sensing from experience and casual observation that things are adjusting and change may be on the horizon, the numbers don’t appear to align with those sentiments.  I’ve struggled to reconcile the two, and it may just be the case that we are still on the brink of change.

Overall, I trust the experts that there may be a shift coming in the next 18 months.  At the same time, areas like San Francisco generally remain pretty steady, even in a shifting market, because it’s a small area with limited supply but high demand.  (As they say, buy land, they aren’t making it anymore.  There is only so much space to build.)

What does this mean for you?

If you’re thinking of buying a home, you can likely expect less competition compared to a year ago and possibly more inventory in certain segments.  You might not see as much overbidding and may see more room for contingencies.  Mortgage interest rates, while higher than a year ago, are still relatively low but on the rise.

If you’re thinking of selling your home, now may be a good time to cash in before things take a turn.  The key is to price it right, make sure the home shows well, and maximize exposure to the buyers who are still out there.

For a personal consultation on how changes in the real estate market could affect you, contact me at (415) 993-0618.

 

 

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