Spring Hysteria: Market Recap and Looking Ahead

26 May Spring Hysteria: Market Recap and Looking Ahead

So far in 2016, the overall real estate market has been seemingly the perfect storm of low interest rates, shortage of inventory, and spring fever combined with strong buyer demand. Here are a few of my takeaways and thoughts as we head into summer.

Market Recap:

1) The real estate market is becoming impossible to predict.

Wasn’t it just near the end of December that we were hearing mortgage rates inevitably were going to rise multiple times throughout 2016? While I never believed that was going to happen for a variety of reasons, I didn’t anticipate the drop in mortgage rates to 3 year lows. It’s important to note that mortgage rates don’t necessary move in the same direction as the federal fund rate. This drop has certainly been the gasoline that has  lit the market this spring. This further demonstrates that an increase in rates will certainly impact buyer demand, inventory and the economy in general. When an increase will occur is anybody’s guess at this point.

2) The shortage of inventory has become an ideal time to sell and take equity profits.

Most market areas have appreciated since 2013 and I’ve observed many investors, homeowners, etc. who bought homes in the years 2008-2012 sell and take equity profits to possibly move up/downsize, move out of state, hold cash, etc.  A few days ago, I posted a stat on my Advantage Appraisals Facebook page that April 2016 sales were down 8.3% since April 2015 and the lowest sales volume since 2008 in CA. This stat on the surface seems somewhat odd given the real estate headlines.  Part of this lower sales volume may be because there is less inventory available for buyers, thus, sales are down as a whole.

It’s important to note that buyers are more educated and aware if a property is grossly overpriced, so sellers can’t assume that just because the market is hot that all they need to do is list their home and the buyers will come. There is a fine line between testing the high end of price range and listing too high.

Casey Spencer, a realtor with Saratoga Group in the Auburn and Meadow Vista market areas, states  “There’s no better time to list your home in the price category of $500,00 and below. But don’t expect buyers to grab just any home at any price: they’re becoming more discriminating and better-educated all the time. In the mid-price range between 500 and 700K, things are very different, inventory is greater, and homes are taking more time to sell.”

3) Buyers are ready to compete and are paying over list price in many instances.

In many market areas, the upward price movement has happened so quickly that many pending sales are in contract at a higher price than the most recent closed sales. Due to competition and fear of losing the house, some buyers are now adding clauses into contracts that they will make up the difference in cash between the contract price and appraised value.

Casey further states, ” This springtime home buying season is certainly different than a year ago. In my primary area that I called the Placer Foothills, the market segment up to $500K has a shortage: only half as many homes are available as were one year ago.”

General Thoughts Looking Ahead:

1) It will be interesting to see if the  spring fever and buyer demand continue through summer or drop off.

Typically there is a drop off in real estate activity during the  summer months due to kids out of school, vacations, etc.  With many buyers operating with a mindset of fearfully losing out and not finding their home before interest rates rise, many may continue full throttle ahead.

2) At what point do buyers feel like they are being stretched too far in over paying and start to pull back and/or put the brakes on their home search and wait.

Let’s say rates move up slightly, and as a result, the market slows a bit and there is more inventory available. Maybe it’s worth it to a buyer to wait this frenzy out if it means having more inventory selection and finding a home that better suits their needs vs. settling on a house due to lack of inventory and dealing with bidding wars. Their mortgage payment may be slightly higher, but maybe negotiating a better deal on sales price may slightly offset.

3) How will mortgage rates fluctuate?  

Will they go up..then down again? …will they go up and hover around 4% for a long while?…then drop and even increase further?  My own opinion is that our housing market and/or economy has not necessarily recovered by a true robust economy rather years of government interventions (QE, zero low int rates, etc) that has continually propped the market up higher and higher over time. As rates fluctuate and move, the impact on housing and household affordability, spending, etc. can’t be overlooked.

Any thoughts? I’d like you hear your opinion as well.

I wish everybody a happy and fun Memorial weekend ahead!

Disclaimer: All information deemed reliable but not guaranteed. The information is meant entirely for educational purposes and casual reading only and is NOT intended for any other use.  This information is NOT intended to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or other potential real estate or non real estate purpose. This appraiser is NOT a qualified home inspector and any tips are for informative purposes only. If you’d like to obtain and order an appraisal for your specific needs, please contact Bryan at 530-878-1688 for more information.