Are prices going to drop?

I’m reading a lot of headlines and seeing YouTube videos about the market crashing.

Is it going to happen? Short answer is NO.

Is the market slowing down a little right now? YES. It always does this time of year. People go on vacation and those with kids like to be in their new home before school starts. I always like this time of year because I can catch my breath and enjoy a break before it picks back up a little for the rest of the year. When I go to a track and I get used to doing 120 MPH in a straight, hopping on the interstate on the way home and doing 80 feels slow. Right now we are all so used to a crazy fast market, that even a strong but not super strong seller’s market feels like a major slow down.

Are we seeing more houses come on the market right now? YES. I think this is because all the sellers who would have sold during COVID now feel it is okay to put their house on the market. We started seeing more listings hit the market after the vaccinations rolled out. This makes me think that the sudden increase in inventory hit all at once. We will see if it keeps up. Really though, I sort of hope it does. I would love to see a balanced market where there aren’t 5 offers the first day on the market for a loser house and 15 offers the first day for an HGTV worthy house. Simple economics tells us that as long as there are more buyers than sellers, that it will remain a seller’s market. As long as it is at least a balanced market, meaning supply is equal to demand, prices will remain the same.

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!!

What is being a realtor really about?

You’d think it would be about houses, but it is not.

You’d think it would be about the market, but it is not.

You’d think it would be about knowing what a house is worth, but it is not.

You would think it would be about marketing a property for sale, but it is not.

You would think it would be about showing houses to buyers, but it’s not that either.

All of these things are important, but they are not what being a realtor is really about.

It is about guiding people to make a good decision using all of the things above. I often describe my job, when asked, as “Talking people into making a good decision and talking them out of making a bad one.”

In the future, realtors might not even be needed for a buyer to view a house. People may end buying real estate like they do anything else online, or there will be an app to open the lockbox on the front door without a realtor. In the future one of two things will happen: Technology will make tools like Zillow’s Zestimate more accurate, or people will broadly accept them as being accurate. Either way, realtors won’t be needed to determine market value.

It all comes down to helping people make a good decision. There are tons of tiny decisions in buying or selling a house that can have huge consequences. Money can be lost. Time can be wasted. Stress can be compounded. Since most people only buy or sell a house a few times in their lives, often they don’t know the difference between a good decision and a better one. It is easy to make a good verses bad decision. Good verses better requires some knowledge and experience.

A realtor friend and I often chat about what we having going on. It makes us both better realtors I think. He had a situation where he had two offers on a listing. One was slightly better than the other, but the people with the slightly worse offer really wanted to live in that specific neighborhood. Do you go with more money and risk losing those buyers if the home inspection didn’t go well? Do you go with the slightly less offer where you know the buyer is less likely to walk away because they have to have that specific neighborhood? I told my friend to go with the higher offer. My thinking was that if the higher offer people walked away after the inspection, which is usually within 10 days, the other buyers who wanted that specific neighborhood will still be around. Best of both worlds.

Since the market is so hot right now, I am seeing lots of sellers saying a neighbor or a somebody they know is interested in buying their house before it gets listed. My advice to anybody today is to put the house on the market and try to get at least two offers. Today’s buyers are used to fighting to get a house. Get two or more buyers competing for a house and YOU as the seller will always come out the winner. Also, a buyer wanting your house because their parents or grown children live on the street will ALWAYS be there too. That buyer is not just looking for any house in your price range. Being close to mom, dad, grandma, grandpa or grandkids is what makes them want your house. They may or may not pay the most for it, but they are not out actively looking for any house in your price range all over town.

Another thing I am seeing more of is the opposite end of this where a buyer thanks me for my time and tells me they have bought a house from a friend. I had somebody this year with a friend who was selling their house by owner. My client bought it. The house had been on the market for quite a while. In today’s hot market, not selling fast is a sure sign that something is wrong. When buyers decide to wait for the next new listing and pass on your house, can you imagine how difficult it will be to sell the house in a cooler market? This is where the whole good verses better decision starts to have big consequences. People who make poor choices as a buyer typically don’t realize they made a poor choice until they go to sell the house. I saw plenty of that from Great Recession sellers who told me they went over the asking price in multiple offers when they bought the house that they were now selling for less that they owed on it.

So, being a realtor is really about using your experience and knowledge to help people make the best decisions possible. There is nothing that feels better than knowing your seller got the best deal possible, or that your buyer landed a house that will always be easy to sell when that time comes.