Written by Nick Kellar, Owner & CSO of Atlas Premier Realty
Ah, spring. The time of year the grass gets greener, the weather is warmer, and we get our “honey do” lists together. Baseball and lacrosse are back, as are grass cutting and allergies. It also marks the time of year when, traditionally, home buyers come out from hibernation and home sales start their boom for the year. However, unlike the last few years, interest rates have started to creep up and we just had a volatile & controversial presidential election and turnover. So will this impact the most fertile time of the year for real estate?
I would say, locally, early indications show it hasn’t. While winter is typically the slower time of the year in our world, the first quarter this year, like the rest of the economy, showed signs of strength and that it would hold up over some of the recent volatility.
One thing opening some eyes, especially now that we are in full swing spring market, is that we have not had the same level of NEW inventory come on the market (new inventory = new home listings going on the market). For instance, while new inventory in Jan-Mar 2016 went up 11% from the same 3 month period of 2015, new inventory in Jan-Mar 2017 has only gone up 2% from the same quarter in 2016. Simply put, we are, in the Baltimore Metro market at least, starving for inventory.
Now let’s take a look at the demand.
New contracts (homes going under contract) during the same 3 month time period in 2016 over 2015 went up 10%, which nearly mirrors the 11% of new listings the market acquired year over year. However, new contracts in Jan-Mar 2017 has only gone up 5% over the same period in 2016. We have more demand, but not by the same margin from 2015 to 2016 and not with the same ratio of 2017 New Listings-to-New Contracts. That said, conventional wisdom says it’s hard for new sales to go up when there is clearly a lack of new inventory.
Simply economics and laws of supply and demand tell us that if we have a lack of inventory and increased demand, what must go up? Price. And if price goes up, we must be in what kind of market? Seller’s. Every local market metric and pricing indicator shows that we are currently in a seller’s market. In fact, working in the trenches with seller and buyer clients, I can tell you without looking at the numbers that we’re in a seller’s market. Almost anything that looks good that comes available is gone within days and, becoming more prevalent, multiple offers.
What does this mean? Well, I can tell you that new listing inventory doesn’t go up as the year goes on, so if we don’t see a spike in new listings in April and May, we will start seeing even less come available through the rest of the year. In my humble opinion, if interest rates continue to rise (side note: as of April 13th, they fell to a 2017 low) as they are rumored to, we will see more sense of urgency within the buyer market within a scarcity market environment. Doesn’t sound like a healthy mix to me. With prices continuing to go up and less selection on the market to choose from, we’ll see a very frustrated group and this may mark the beginning of “buyer fatigue” with the market and some pullback in general.
Things can obviously change, but it’s rare for something to drastically change the real estate market trajectory. I guess if turmoil internationally breaks out, we could see investors race to put money in US bonds, the 10 year Treasury note subsequently go down, and interest rates drop down with bond yields. This could put some ease to the sense of urgency amongst the buyer pool since they won’t feel some pressure to buy amidst rising interest rates and smooth things out some, BUT people don’t just buy because the interest rate looks good. It’s a factor in affordability, but not usually in the actual decision to buy a home. In other words, if buyers have a motivation to buy a home, they’re going to want to buy a home. I see a very competitive spring market and rest of 2017.
General advice in navigating these waters:
If you, or someone you know, has plans to buy a home, start your strategy earlier than previously thought so you can get a feel for where you might fit in and your comfort level with how things are going. Most importantly, stay patient, do your best to remove emotion from it, and look for ways to position yourself differently to the 2017 home sellers.
If you’re a home owner thinking of selling, this sounds great, doesn’t it? Less competition, higher price points, lower days on market….this could be fun. Well, if you have to turn around and buy a house, keep in mind you might have the tables turned, but conditions do line up right now to help you sell somewhat quickly and for top dollar. However, the principles of strategically positioning and differentiating your home DO STILL APPLY. This is NOT 2005, buyers will still be selective, so having a strategy in place will still be in your best interests.
Well, this wraps up my first ever blog with Atlas Premier Realty, hope it was informative and helpful, and please feel free to forward along to anyone who might see some benefit from it. As always, if I can personally be of any assistance to you, or anyone you know, and/or you have any questions, please don’t hesitate to contact me anytime. Thanks guys, have a great spring, and Go O’s!!!
**All of this data is from our local MLS database and of the Baltimore Metro market only. Real estate changes from market to market.**