I flew to San Francisco to deliver a keynote for my friends in the National Association of Hispanic Realtors.
But right now, I want to talk to you about the reduction in prices for real estate.
For those who don’t know, I run one of the largest communities for real estate agents, with more than 150,000 agents scattered all over the world. And right now, what we are seeing are two things: price reductions in some areas, and multiple offers even without price reductions.
That reinforces the fact that real estate is regional.
Today, I’ve got some more data for you. The resource material is quite long, you can check it out. But I will highlight some of the most important parts of this trend report from realtor.com.
It’s called the “April 2022 Monthly Housing Market Trends Report.”
Here’s what’s going on.
According to the trend report, “Although inventory is closer to catching up with last year, home shoppers are still contending with fewer homes for sale.”
That’s the truth. I have a lot of people we are helping out here in Los Angeles, and it is the same story. A lot of competition, still multiple offers.
“The national inventory of active listings declined by 12.2% over last year, while the total inventory of unsold homes, including pending listings, declined by 10.7%,” says realtor.com. Common sense dictates that if we have a decline in inventory, it follows that there will be fewer sold homes.
The article also says that “nationally, the typical home spent 34 days on the market in April, down 6 days from the same time last year and down 28 days from April 2020.”
That’s significant. It shows you that, nationally, there’s only about a month for real estate. In some areas it is 15 days, in others, it is way more than 34 days.
So far, what we know is there is a highly competitive demand and a lack of inventory. Even if sellers have, according to realtor.com, “re-emerged and newly listed homes have finally increased compared to the same time last year.”
Yes, we saw an increase in supply compared to last year, but we are still far behind.
If the demand is hot, and the supply is lacking, why would the price reductions for real estate be increasing? Here’s why.
Inventory is going to increase in the next few months.
We are expecting an increase in inventory in the coming months because interest rates have gone up.
There are two things: first, it will push the serious buyers that were serious in looking and need to move into the market saying “we need to buy right now.”
My cousin is buying [real estate] right now. She’s a nurse, her lease is up and she needs to buy, so we’re helping her out.
Second, it pushed out those people who are still kind of in the middle. With the interest rates going up, they might be thinking that it isn’t worth it, or they can’t afford it.
Increased interest rates and all-time high listing prices are moderating demand.
Realtor.com reports, “In addition to an increase in new listings, buyer demand has moderated due to the combination of rising interest rates and all-time high listing prices that have increased the cost of financing 80% of the typical home listing by almost 50% compared to a year ago.”
That’s dramatic. That’s also why it is pushing a lot of people out of this market.
“Inventory declined in 42 out of 50 of the largest metros compared to last year, but 8 metros saw inventory growth, up from 6 last month. Metros which saw the most inventory growth include Riverside (+23.3%), Austin (+16.5%), and Sacramento (+11.8%),” according to the article.
This is important. Because look at the metros which saw inventory growth. They belong to large metros.
And according to realtor.com, “In the 50 largest U.S. metros, the typical home spent 28 days on the market, and homes also spent 6 fewer days on the market, on average, compared to April 2021.”
So, why are there price reductions even if there is still high demand?
Because, according to the article, “sellers are responding to a softening of demand. The share of homes having their price reduced increased from 5.6% last April to 6.9% this year, but still remains 9 percentage points below typical 2017 to 2019 levels.”
When sellers notice that their homes are not selling in a day anymore, they start to re-evaluate and consider lowering the prices, at least, to market value.
It is not that the prices are dropping significantly to a price that is below the market value, it’s more of sellers freaking out and dropping the prices to secure sales. Because in some areas, sellers price their homes at higher than the market value to gain some more profit. They are bringing it back down to market value price.
We saw that inventory is still lacking, but it is slowly catching up. We also saw that demand is still high for the real estate market.
If you check out the trend report and look at the graph showing Days on Market for the years 2017 to 2022, you’ll see that April 2022 is down six days compared to last year.
In 2020, during the beginning of the pandemic, the uncertainty caused an increase in the number of days in the market around this time. But normally, pre-pandemic, it goes down around this time and climbs back up around September. Despite being significantly lower than the years before the pandemic, 2022 follows the same trend as the rest.
Now, if you check the graph titled Price Reduced Share from 2017 to 2022, it is up by 1.3% in April 2022.
Compared to last year, people started reducing their prices a little bit sooner this year. But comparing it to 2017 and 2018, you’ll see that it follows a similar trend and started picking up at the same time as a normal market a few years back.
This shows that the market is starting to go back to normal (just with significantly lower numbers, but the pattern behavior is the same). And that is good news for the market.
What we are seeing now is, in some areas, the market is slowly shifting. It is not going to crash. The prices are still estimated to go up. It is just that people are now starting to be more realistic in pricing in some areas. More sellers are thinking of maintaining the listing prices at market value because interest rates have gone up and less people can afford it.
Prices are slowly going to come back to normal. It may take up until 2024 for that to happen because the inventory will take some time to catch up to the large demand.