Nailed it! See how my predictions turned out

I’ll try to remain humble here, but I called exactly what is happening in the market today.

I have always said there will always be a market. There will always be demand. Some times the demand will be pent up with people sitting on the sidelines, but they are there, waiting to feel comfortable about making a move. (Typically these people wait until enough other people dive in and effectively end up jumping into a hot market, which is what they were hoping to avoid.)

I have been saying for months that I thought the market could still be very good with interest rates around 6% or less because historically, the past several super hot markets we have seen in our area had those rates and adjusted to average income, real estate values in our area are similar. I’ve said that rates over 7% won’t last forever. I’ve also been saying for years that once rates start going up again, people would be reluctant to give up their super low rates which would create a shortage of listings and would keep prices stable regardless of the market conditions.

I’ve suggested people buy real estate as soon as they are able regardless of the rate since you can always refinance when/if rates go down but you can’t go back in time to get yesterday’s home prices.

And now you know what stories are making the headlines? That mortgage applications are up recently due to rates dropping below 6%. That refinancing applications are up too. That rates are down. That prices aren’t really dropping in areas that didn’t see crazy stupid price increases.

I am seeing all this myself with my clients. I had two listings that went on the market right around Thanksgiving. One of them was modestly priced, totally updated and in a desirable neighborhood. I really thought it would go fast even though that time of year is usually slow. It hardly got any showings, which is very strange. Then once rates went down we had 5-6 showings in a matter of days and it sold. When I go to show listings to my buyers lately, most of the time there is another realtor showing the house when I arrive or one that shows up as I am leaving, sometimes both!

How the market works when there is inventory

Now that we are back to having some inventory in our real estate market, I thought it would be a great time for a refresher on how the market works when there are actually houses for sale.

The recent past has shown that any house will sell fast when there are more buyers than sellers. When your choice is between whatever house in your price range hits the market or hoping the next one is better, people usually make an offer on the one for sale that day.

We are back to a normal market where Buyers have choices and this is how they make their decisions.

Simply put, they pick the best house on the market. Usually this is a house that is priced realistically, that is move in ready and is in the most desirable neighborhood within the Buyer’s price range. Then there is their second, third, fourth and so on choice.

Once that #1 pick house sells, then the #2 pick house becomes the top choice. Once the #2 house sells, then the 3rd pick becomes their 2nd choice. Once the…..well, you get how this works I am sure.

Sometimes what happens though is that a brand new listing hits the market and changes the ranking. If you have the #2 house and are excited to be the next house to sell, a house hitting the market that is better than your house means you will stay at #2 on any Buyer’s list. Sometimes winter is a good time to sell a house that has been the #2 or #3 house because we tend to see fewer new listings. Eventually your house rises to become the best choice in its price range.

The goal of you and your realtor is to make your house as competitive as possible so it ranks high on the list of Buyers. Sometimes it is as simple as rearranging furniture, doing a little updating, doing a few repairs that have been noticed during showings, or even a price reduction.

While we are discussing inventory here, I want you to know that in the coming months you will see headlines about the “Average days on Market” rising. Any time you have inventory, this will happen. It doesn’t mean that every house is harder to sell. There are still plenty of houses selling fast and even getting multiple offers. Those are all the #1 choice houses, the ones everybody wants. All the houses that are further down the list will stay on the market longer, waiting for price reductions or some other change to be made which will eventually lead to a sale. In the meanwhile, those houses will dilute the average days on the market statistics.

Waiting for a good deal on a home?

Have you been waiting for the market to crash before you pull the trigger on your new home? If so, I’ve got great news for you. Now is your time to buy.

What? I know what you are thinking…..”John, you are crazy, these prices haven’t changed much at all!?!?”

Well dude, it’s time to stop thinking about prices and to start thinking about value.

The price of something is the number of dollar bills you must pay.

The value has to do with what those dollar bills are worth adjusted to inflation.

Inflation is a dirty word we are reading a lot about and is making us spend more of our dollars because it takes more to buy the same things it did a couple of years ago. If you think of inflation as prices on stuff going up, you’re sort looking at it wrong. That is a consequence of inflation. Inflation is really the devaluation of a dollar, which is why it takes more dollars to buy the same stuff. If we have 7% inflation this year, what that really means is the value of today’s dollar is 93 cents compared to last year so the price of everything will go up accordingly.

Now let’s apply this to houses.

Prices in the bluegrass area are about flat for this year….meaning they haven’t really gone up. Meanwhile inflation has made last year’s dollar worth about 93 cents. So inflation has devalued the dollar causing everything you buy to cost more dollars EXCEPT for real estate. If the price of something didn’t go up during an inflationary time, that really means that adjusted to inflation, the value dropped. So you don’t have to go back and read that again, I’m saying even though the price of a house is about the same as last year, it is really worth less today adjusted to inflation.

So, go out and buy today. Everything is effectively 7% cheaper than it was last year.

Thankful that these embarrassing moments don’t happen more often!

I normally do a lighthearted post around Thanksgiving since I know few are thinking about real estate during the holidays.

This time I thought I might share some of my most embarrassing moments.

There have been the countless times I have been out with clients and not realized until I got home that my zipper was down. It has happened so many times that I can’t recall any one specifically.

Probably the funniest time was when I was having an incredibly busy day showing multiple houses to multiple clients. I had arrived about 5 minutes early to a house. Just as I got there, my client texted saying they were running a little late. I was so excited because I had drank many many many cups of coffee that day. I let myself into the house maybe 2 minutes before the scheduled showing time officially began. While I am in one of the upstairs bathrooms, I hear a voice asking if anybody is in the house. I state that I am the realtor here to show the house. The voice was the seller, who hadn’t left yet, in the bathroom on the other side of the wall from the one I was in. The seller and I never talked face to face. He must not have drank as much coffee as I did that day because when I exited, he was gone.

Then there was the time I had another crazy day of showing houses. This one began really early one morning. It was still dark outside. I kept my sandals in the foyer closet. I stuck my left foot in the closet and pulled it out with a left sandal on. Then I stuck my right foot in the closet and pulled it out with a right sandal on. What I had forgotten is that I had two identical pairs of sandals. The only difference was one was leather and the other was suede. I did not realize until I got out of the car that I was wearing one of each of those sandals.

Speaking of shoes, for a while there I had a really nice pair of sandals that would occasionally, if I stepped a certain way, make a noise like somebody was passing gas. Every time that happened, I would subtly try to get the shoe to do it again so people wouldn’t think I had just passed gas, but of course the shoe never cooperated. I then looked like somebody who had just passed gas and was walking funny. After a few times of this embarrassment, they became my lawn mowing sandals.

More than a few occasions I have been worried about running late and passed my client at a rapid pace on the way to a house. I usually say something like “See how motivated I am to find you the perfect place?”

And I won’t even go into all the times my phone’s autocorrect totally changed what I had typed.

One time, I was showing a vacant rural property that had a giant outbuilding. I was there with a husband and wife. I opened the door to this building and the wife walked in right behind me. All of the sudden, we both felt all these insects literally all over us. I am highly allergic to bees, which is what I assumed they were. I turned around to run out of the building and she was in the doorway so I grabbed her like I was saving her life and then both of us jumped off the top step into the yard with our arms wrapped around each other. Turns out they were just flies. When we went back inside, there were probably a thousand flies swarming around.

I guess if these things are the most embarrassing moments of my nearly 18 year career, it hasn’t been too bad.

I hope everybody has a great Thanksgiving!!

Why 6-7% interest rates won’t crash our market

If you’re like me, all you are reading in the news is how the skyrocketing interest rates are affecting the real estate market. Headlines say stuff like how the rate has nearly doubled, how sales have decreased, some even are saying the market is going to crash.

Wrong. Wrong. Wrong.

Youtubers and journalists need something exciting to get your attention. If you saw a headline or video that pretty much said everything is going to be okay, would you be interested?

I think part of this drama is also that you have people whose data is correct but how they use it is wrong, or their data doesn’t give much of a historic comparison.

Affordability seems to be the main topic today. These people are talking about how much more a mortgage payment would be today compared to the all time low we saw last year……DUH! Short term thinking I say.

Here is why I don’t think a 6 or even 7% interest rate is going to do much more than curb unsustainable appreciation and slow down people moving just because they feel like moving. To begin with, people will always have changing needs for housing. Families will grow, there will be divorces, marriages, job transfers, job losses and all the other lifestlye/life cycle changes.

But here are the main reasons I am not worried: The Debt-to-Income ratio and longer term history.

Let me take you back to the early 2000s. The real estate market was crazy. Houses were selling fast in multiple offers. Prices were going up like crazy. Know what the interest rate was back then? Barely under 6%. And back in the late 90s when the market was also booming, it was about 7.5%.

A house in the Bluegrass that was worth about $250k back in 2004ish would be worth about $425k today. The principal and interest portion of your loan at 6% on a conventional loan with 5% down would have been $1423 back then and $2420 today. Yeah, that sounds like a lot more. It is, but let’s keep going here.

So the real difference between then and now with property taxes and insurance included would be about $1200 a month. To qualify for the mortgage on that $250k house back then would require an annual income of about $73k. Today that house would be worth about $425k and would need about $126k in income. The median household income has gone up 80% over that time according to the census. The value of that same house has not gone up quite as much.

So there you have it. I think if the market has historically been very good in the past during times when rates were higher than they are today, and since household income has pretty much grown congruent to home values in the Bluegrass, we will weather this period very well.

Then why is the market so slow right now? Simple. People are in shock and upset that rates went up so fast. Once they realize they can’t go back in time, they will move forward with their plans. I predict that (short of a major economic crisis that pulls down EVERYTHING) buyers will be out in force next spring. Prices will remain stable. It will be a good market. It won’t be a market that you’ll read headlines about because remember, you only see real estate in the headlines when things are exceptionally good or exceptionally bad.