Is the Real Estate Market Finally Getting Back to Normal?

The housing market has been anything but normal for the last eleven years. In a normal real estate market, home prices appreciate 3.7% annually. Below, however, are the price swings since 2007 according to the latest Home Price Expectation Survey:

After the bubble burst in June 2007, values depreciated 6.1% annually until February 2012. From March 2012 to today, the market has been recovering with values appreciating 6.2% annually.

These wild swings in values were caused by abnormal ratios between the available supply of inventory and buyer demand in the market. In a normal market, there would be a 6-month supply of housing inventory.

When the market hit its peak in 2007, homeowners and builders were trying to take advantage of a market that was fueled by an “irrational exuberance.”

Inventory levels grew to 7+ months. With that many homes available for sale, there weren’t enough buyers to satisfy the number of homeowners/builders trying to sell, so prices began to fall.

Then, foreclosures came to market. We eventually hit 11 months inventory which caused prices to crash until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery.

Over the last five years, inventory levels have remained well below the 6-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages well above the appreciation levels seen in a more normal market.

That was the past. What about the future?

We currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels which most experts believe will happen for the next year. However, two things have just occurred that are pointing to the fact that we may be returning to a more normal market.

1. Listing Supply is Increasing

Both existing and new construction inventory is on the rise. The latest Existing Home Sales Report from the National Association of Realtors revealed that inventory has increased over the last two months after thirty-seven consecutive months of declining inventory. At the same time, building permits are also increasing which means more new construction is about to come to market.

2. Buyer Demand is Softening

Ivy Zelman, who is widely respected as an industry expert, reported in her latest ‘Z’ Report:

“While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets.

Indicative of this, our broker contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”

With supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012- Today).

Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.

Bottom Line

Returning to a normal market is a good thing. However, after the zaniness of the last eleven years, it might feel strange. If you are going 85 miles per hour on a road with a 60 MPH speed limit and you see a police car ahead, you’re going to slow down quickly. But, after going 85 MPH, 60 MPH will feel like you’re crawling. It is the normal speed limit, yet, it will feel strange.

That’s what is about to happen in real estate. The housing market is not falling apart. We are just returning to a more normal market which, in the long run, will be much healthier for you whether you are a buyer or a seller.

Mistakes To Avoid On Your First Buy/Sell

Mistakes To Avoid On Your First Buy/Sell

If this the first time you’re considering buying a home, or selling your first purchase, there are a lot of possible challenges you can end up facing. Having the right agent can ensure you’re able to get through these challenges, but since some of the issues are universal, let’s review some mistakes you want to avoid making.

1. THE RIGHT PRICE

Pricing a property is a science of it’s own. There are a lot of components and factors, so many small details, that ultimately lead to the value of a home. Although there are a lot of sites with estimates, namely Zillow, the technology uses on online sites to determine property values are simply not accurate. Zillow even states that their numbers can be inaccurate up to a whopping 20%. Without a background as a real estate professional, it’s virtually impossible for a consumer to be able to know the proper components needed to price a home. When you’re purchasing a home, you’re want to find a deal, can lead to stubbornness about what you’re willing to pay and what you think a home is worth. But what you WANT it to be worth is the complete opposite of what it should sell for. If you’re a first time seller, you may want to sell your home for as much as you can squeeze out of it, but this can lead to unrealistic expectations, and ultimately lead to an overpriced home that never sells. Don’t make the mistake of assuming you know what a home’s value should be. Instead, partner with a real estate agent that truly is working for your best interest, and let them provide you the tools to support home values, so you can place an offer, or price your home, at a number that makes sense.

2. REFUSING TO NEGOTIATE 

Pricing a property is a science of it’s own. There are a lot of components and factors, so many small details, that ultimately lead to the value of a home. Although there are a lot of sites with estimates, namely Zillow, the technology uses on online sites to determine property values are simply not accurate. Zillow even states that their numbers can be inaccurate up to a whopping 20%. Without a background as a real estate professional, it’s virtually impossible for a consumer to be able to know the proper components needed to price a home. When you’re purchasing a home, you’re want to find a deal, can lead to stubbornness about what you’re willing to pay and what you think a home is worth. But what you WANT it to be worth is the complete opposite of what it should sell for. If you’re a first time seller, you may want to sell your home for as much as you can squeeze out of it, but this can lead to unrealistic expectations, and ultimately lead to an overpriced home that never sells. Don’t make the mistake of assuming you know what a home’s value should be. Instead, partner with a real estate agent that truly is working for your best interest, and let them provide you the tools to support home values, so you can place an offer, or price your home, at a number that makes sense.

If you go into a sale, or purchase, refusing to make negotiations, hard-set on what you want without exception, you’re more than likely going to cause a lot of grief and stress for yourself during the sales process. When you’re looking to buy or sell a home, you have to have an open mind about negotiations. They are a common practice within the industry, with buyers wanting to spend less and sellers wanting to net more. If neither party is willing to make negotiations, you’ll find yourself in a contract time and time again, only to fall apart before you can finally close on the home. Having a great agent will help you ensure you make negotiations that are reasonable to lead both parties to the closing table, without compromising you. 

3. REALISTIC EXPECTATIONS

Although we all have an idea in our mind what our dream home should be, sometimes the market, and your budget, don’t fit realistically into check marking everything off of your list. Find an agent that helps you look for the most important needs in your dream house, but keep an open mind to a home that fits most of your needs, but not necessarily all of them. Having too many expectations within a home can become stressful and result in never finding a home that really matches your needs. If a home has the major components you are seeking, get creative and see if the other things you want can be added down the road. Have a certain number of non-negotiable items, like bedroom/bathroom count, but then have a list of “wants.”

4. YOU’RE NOT ALONE, DON’T GO IT ALONE

Don’t make the mistake of trying to handle the sales process all on your own. There is a reason that the real estate profession, and the laws around it, are as strong as ever. Real estate agents are a necessity during the sales process to ensure the right steps are taken to get a home sold. Buying and selling is a difficult process that requires knowledge and expertise that comes from a professional within the industry. From legal terms, to finding homes that aren’t even listed on the market, there are a lot of ins and outs un-experienced buyers and sellers may not think about, which can lead to losing value on your home or never finding the right one. Avoid the stress of “learning the hard way” and find a professional that can give you the guidance you need to get the task at hand completed and ensure you’re happy with the outcome.