What would it take to crash the real estate market?

A lot of people subscribe to the “What goes up must come down” theory on markets. I don’t. I tend to just use that one when describing gravity.

For real estate, we have only really ever had prices go down twice in the history of tracking such stuff. Once was the Depression which caused ALL markets to go down, and the other was the Great Recession which was largely caused by bad mortgages that were toxic to the stock market. Neither time actually had anything to do with just the real estate market.

Today’s market is probably the healthiest it’s been in a long time. Prices are high due to supply and demand. Sure, low interest rates help but not as much as you would think. People acclimate to interest rates. I remember bragging about getting 6.625% on my first home when all my homeowning friends were over 7%.

When people on Youtube or those who write for the news look at the real estate market, they tend to not look at the whole picture. I am sure you have seen headlines about how all the people in mortgage forbearance would crash the market once they got foreclosed. Didn’t happen. All those people who needed to sell had enough equity to sell and avoid foreclosure. What about all the Baby Boomers who would leave a huge void in the real estate market as they sold their homes and went into retirement homes or to reside on the other side of the Pearly Gates? No mention of the youngest generation of buyers entering the market who would keep the wheels of the whole market greased so everybody can move. Years ago I described this like a baseball game where the bases are loaded. The Player on 1st base wants to run to 2nd. The Player on 2nd base wants to run to 3rd. The Player on 3rd wants to run home. What needs to happen in order to keep all those Players moving? For the Batter to hit a home run. The first time buyers are the most crucial element of the market. Without them, no homeowner can part with their old house in order to move up to their next one.

Everybody knows how Supply and Demand works, right? Let’s apply it to real estate. Most people involved in selling or buying will be doing both. Most sellers are also buying. Most buyers are also selling. That means there is no net gain or loss in the supply/demand ratio regardless of the market. This is why the supply/demand ratio got so bad during the Great Recession-You had so many foreclosures where the previous owner did not reenter the market as a buyer. Other than in such catastrophic times, the only people who are doing one side of a sale are first time buyers or those who have passed away or are going into some form of assisted living. Historically there have been more first time buyers than there are those who are exiting the market permanently. (I am excluding those well off enough to purchase second homes since that is a smaller market and we are not in a big area for that like Florida or any other vacation destination.)

So then, what would it take to tank the real estate market if it has nothing to do with real estate? It would take something terrible to happen with the economy…..meaning something bigger and broader than just the real estate market that is like a Tsunami and wipes out everything in it’s path. Let’s hope that doesn’t happen any time soon!

Why now is the best time to buy all year

At the risk of sounding like the stereotypical realtor who is always saying that now is the best time to buy, it really is the best time to be a buyer since before COVID hit.

Why? Lots of reasons but the biggest single reason is that we are seeing more listings hit the market at a time when most everybody who was going to buy a house in 2021 has already done so. If the market were a restaurant, picture that time when you walk into a very popular place that is hard to get into at noon, but you have arrived at 12:45 and there is plenty of seating.

This won’t last long though, which is why I think now is a great time.

I put on a new listing for $185k last week. We had tons of showings, some interested buyers, but only one full price offer. That hasn’t happened all year. One of the agents that showed it gave me some feedback. She said that her buyer opted to buy another house that was closer to her grandparents whom she took care of. I read that and I was a little shocked. It was the first time in the past two years I have seen where a buyer had a choice between two houses. Lately the choice has been the one house on the market or waiting for the next new listing.

The week before that, I put 3 new listings on the market. Granted all sold the first day, but two of them sold for slightly less that the list price and only got one offer.

I think the market will remain strong for years to come. It might not be the frenzy we have seen but there is no doubt we will have more buyers than sellers for quite some time. We will see what next spring brings. That is usually when we see prices got up the most. That is why I think between now and late winter might be the best shot you have for getting a house!

Does location matter any more?

I guess a lot of people think being a realtor is about opening doors and cashing checks. I guess there are a lot of realtors who think the same so that is probably the source of the perception.

You don’t need me to help you pick a pretty house. You don’t need me to be there to tell you what you like or dislike about a house. You don’t need me to find houses for you. You don’t need me to walk into the only room with a chandelier and announce it is the dining room. You don’t really even need me at all…….unless you view spending the most money you have ever spent as an investment that you know you will sell someday and want to maximize the return. Oh, I guess you also need me to make sure you don’t pay too much since you won’t really know if you overpaid until you go to sell it.

So here is a quick lesson on how I go about helping people pick a neighborhood. We have all heard that real estate is about location. It is, but I don’t think people really know what that means. I normally break down neighborhoods into 4 categories:

The “A” Neighborhood-These neighborhoods are the ones people know and love for a variety of reasons. Some might be close to something desirable, some might have a lot of charm, some might have lower crime. Almost all “A” neighborhoods have a good performing school district. These are the ones that people know by name. These are also the ones that will always be easy to sell in even a bad market.

The “B” Neighbhorhood-Is like the “A” but may not be as well rounded. It’s popular, but often viewed as an alternative to another “A” neighborhood that is close by.

The “C” Neighborhood-This is one that no buyer has ever mentioned as somewhere they would love to live. It is just average in everyway. Nothing really is wrong with it. Nothing is really great about it either. It is just a neighborhood full of houses.

The “D” Neighborhood-These are like the opposite of the “A” neighborhood. These are neighborhoods where 16 years worth of buyers have told me they DON’T want to live. It is often because of high crime in or around the neighborhood or due to a combination of poorly performing schools. Let’s face it, if buyer’s are telling their realtors they don’t want to live in specific neighborhoods, there’s your sign that it isn’t the best investment.

Why does this make any difference if you’ve found a pretty house you like in your budget? Shouldn’t you be happy just to have found a house in this crazy market? Isn’t finding a house in a less than popular neighborhood better than not finding a house at all? The answer to all of this is that it doesn’t matter at all when you buy the house. It matters a lot when you decide it is time to move on and you want to sell it.

Right now, let’s say there are 100 buyers in the market. There are 20 houses in each of my categories for sale. That means there are 80 houses for 100 buyers. Oh no! That means all 80 sell for at least full price in multiple offers the first day on the market.

But markets change. I am no doomsday person. I don’t think the market is going to crash. It will however, over time, swing back and forth between being a buyer’s market and a seller’s market.

This is what it looks like in a buyer’s market: There are 80 buyers in the market. There are 100 houses for sale, 25 in each of my 4 categories. How do you think this pans out? The “A” neighborhood houses sell first, then the “B” neighborhood houses, then the…….well, you get it. When there are more houses for sale than there are buyers, buyers get pickier. Buyers can’t be picky in today’s seller’s market but they will be able to again. I am sure of that.

My first house was in a “D” neighborhood. I was in my mid 20s and didn’t know anything. Like a lot of first time buyers, I was focused on just finding a house I liked. As I improved my house, I would look out my window and realize that I had no control over my whole neighborhood. Many of the houses around me were owned by investors. There was some crime. I loved the house but not the neighborhood. I sold it for about what I had in it, which meant I didn’t have a lot of equity to carry over to the next house. That is another reason to always pick a winning neighborhood. You will use the equity you’ve built in your old house as your down payment on your next house. You want to maximize that.

So do yourself a favor and always pick the best neighborhood in your price range.

What happens when we do see more houses for sale?

I read a lot of news about real estate. It is always a little funny to me to see what people who are not realtors have to say about the market. There are two things that I have read this week that have me rolling my eyes.

The first one is the headlines about how the number of sales have been declining. Gee, that’s just what happens when there are so few houses for sale. This does NOT mean that buyers are deciding not to buy a house. It means that they can’t get a house.

The other one is that it seems there is a projection that we should have more houses for sale later this year than we have in a long time. That would be great but let me tell you what it doesn’t mean. It doesn’t mean that prices are going to drop. They might stabilize prices a bit but when a hot new listing in Lexington can easily get 15 offers, we would need 15 times the listings for a balanced market. There is going to be more buyers than houses for a while.

A lot of the people who are fantasizing about what that market might look like are not old enough to have lived through the housing crash during The Great Recession. Back then we had more houses for sale than ever and do you know what? The best houses still sold fast and often in multiple offers. Do you know why? It is because everybody wants the best house in their price range. We could triple the number of houses for sale today and it wouldn’t change much. What would happen would be that the best houses sell fast and for top dollar while every other house languishes on the market. This flood of new inventory does not mean that every buyer will be able to get their ideal home.

A pleasant surprise this morning

Like always, I woke up, made a cup of coffee and checked out the new listings. I saw what prices got reduced, then viewed the pending and sold listings. Pretty routine. Lately it takes about 30 seconds to go through the 15-25 new listings every morning.

Today I woke up to more new listings than I have seen in a while. Many of them were under $200k!

I am really hoping this is the beginning of a new trend. There has been speculation that a lot of sellers were holding off on listing there homes until COVID got under control and they felt okay about letting people in their homes. Today might have been the first day of that.

I am starting to hear from a lot of sellers that it might be a good time to sell their homes. Of course, it has been for a long time. However, when many sellers feel like prices have gotten crazy and decide to cash out, it could mean a shift in the market a little. While I think it will remain a Seller’s Market for quite a long time, I totally welcome a more balanced market. It is good for everybody.

Or it could just be that it is the first big spring day when all the sellers begin to put their homes on the market. Sellers usually need the first couple of warm weekends to spruce up their yards before listing.

We’ll see how the next few weeks pan out. All I know is that it got me excited to think about so many new listings hitting the market!!