Dear friends and clients,
In our last newsletters we discussed how the real estate business is continuing operations as we shelter in place, and sales activity.
Now that we’ve had almost 2 full months of shelter-in-place, what is going on with real estate values and sales activity?
3 bed, 2+ bath homes in Uptown and Mid City (zips 70115,70118,70119 & 70130)
– we are still in a Seller’s market, albeit a mild one. In the past two years we have never been in a true Buyer’s market for more than a month, if that.
– inventory continues its decline: number of homes coming on the market has declined about 24%
– Closings have also decreased about 17%
– That explains the slight shift where we are almost in a balanced market
– More significantly this explains why we are still seeing multiple offers: Our team has been involved in two multiple offer situations in the past 3 weeks one in Carrollton and one in Broadmoor. Here are nine others that our office has been involved in:
– Stats and trends are calculated over 3- to 24-month periods. Since this seems like very fluid situation with uncertainty in many parts of our economy, what is happening in the past couple of weeks?
– 11 homes were newly listed and 14 homes went under contract in the past 7 days
– 24 homes received acceptable offers in the past 2 weeks and 110 homes were still available, which translates in to 2.1 months of inventory, a typical strong seller’s market
Conclusion: overall activity is down as people continue to shelter in place. Sellers and buyers who are currently in the market are serious. Our spring busy season is here, it’s just 6-8 weeks behind schedule.
In the Luxury markets, activity is slower with about 6.4 months of inventory in the $1 – $2 million price range. In the past 2 weeks 1 home pended, and 4 pended in the past 30 days. This very brief snapshot shows about 10 months of inventory.
In the $2Mil + range, we typically have about 12-18 months of inventory, a strong Buyer’s market. There are simply more of these homes available than buyers. In March we had about 21 months of inventory, and in April, nothing above $2 million pended, so we should expect to remain in a stronger-than-normal buyer’s market for a while.
Our luxury markets are obviously smaller than the typical 3 bed / 2 bath market. The specific home location, condition and amenities obviously affect value and buyer interest more than overall market trends, especially in the $2 million + range.
Economy: How can the real estate market be OK when the economy will be in the tank for who knows how long?
Keep in mind that our current economic problems are self-inflicted. This is a temporary condition. We have been ordered to and have chosen to comply with this shutdown. The Great Recession was caused by a fundamental problem in our economy: home values got way ahead of our ability to pay the mortgages, Wall Street and the banks lied about the quality of the mortgage assets they were peddling, speculative derivatives amplified the problems and the system collapsed. After Katrina, our housing stock and job market took major hits that were not quick to restore. Once we learn how to get back to work, and people are earning and spending money, the economy will likely recover more quickly than some of our other disasters. This is a self-inflicted and temporary economic decline.
The coming boom(let)
After the Great Recession, the federal government offered a first-time-homebuyer credit to get the real estate market going. Because this was a temporary limited-time opportunity, it caused some buyers to purchase sooner than they planned. We literally pulled buyers out of the future into the present. After the program was over, we then saw a decline in first-time home buyers. Fortunately, the program worked, the economy was recovering, and we were much better positioned to handle that decline in buyers.
COVID-19 hit right as our spring buying season was ready to heat up. As prices remained stable and mortgage rates were low (see below) we were expecting a booming spring market. These buyers and sellers are now starting to come off of the sidelines. With masks and gloves, people are becoming more comfortable viewing houses, and open houses will start again this weekend.
Affordability: Home prices are flat and money is cheap
Prices for the 3 bedroom, 2+ bath single family homes in the Uptown and Mid-City markets are up about 3% over the past two years. Sellers can take heart that we are not seeing declines. With mortgage rates so low, this mild price increase is more than overcome by monthly rates being so low.
In the meantime, mortgage rates declined about 1.1% in the past 2 years. 30-year fixed mortgage rates peaked in the high 4% range about 18 months ago, and are now down below 3.5%. Since a 1% change in mortgage rates translates to a 10% change in buyers purchasing power, buyers now have about 15% more purchasing power than 18 months ago and at least 10% more purchasing power today than they did 2 years ago. This more than offsets the mild price increases we have experienced! Buyers can either get the house they wanted for and effective 10-15% discount, or move their budget up 10-15% and still have the same monthly payment as two years ago.
This is great news for sellers, too. We have not seen price declines, and the best houses are getting multiple offers. (See above) Those lower rates mean you have a bigger pool of buyers that can afford your house. There are more buyers that can afford your house today than 18-24 months ago.
Not looking to buy? This change in mortgage rates has driven a boom in refinances. If you have been in your home more than few years, now is the time to consider refinancing. If you are presently paying mortgage insurance and your value has increased, you may get a two-fer – eliminating mortgage insurance and cutting your interest rate.
Should sellers list now?
In short, yes. Inventory is declining, so you have less competition.
We get similar questions in the late fall and early winter each year: should sellers wait until after the holidays or even after Mardi Gras? There are definitely more buyers after the holidays, but also more competition from other sellers who also waited for the holidays to end. I always urge sellers to consider that buyers looking during the Holidays are usually VERY serious, and if they are not on the market, those sellers will miss those serious buyers.
Obviously, safety issues need to be carefully considered, and allowing buyers into some families’ homes may be all but impossible now. Sellers who can allow showings can find those serious buyers who are looking right now.
For those sellers who do want or need to sell should start getting ready to sell if they haven’t already done so. Open houses are starting again, and that pent-up demand from the spring is arriving now. Consider having your house pre-inspected, take care of deferred maintenance or other inspection surprises, get staging bids and get the photos taken.
These are of course uncertain times, but we have many reasons to be hopeful about our real estate market. Low interest rates can compensate for overall economic decline, which will help buyers and sellers. Inventory is still declining, but buyers are coming back.
If you or anyone you know has more questions about today’s real estate market, we are here, working and ready to answer any questions or concerns that you may have!