Get Real With Real Estate

Real estate and housing markets go through economic cycles and those cycles are often described in terms of a buyer’s market or a seller’s market. Recently, it’s not as easy to ascertain where we are in those phases. In the Bay Area, along with most metropolitan cities on the coasts, this summer has shown signs of ‘buyer fatigue’. 

 

Both the time and money it takes to buy real estate has exhausted those in the market looking to purchase a new home. People are tired of being outbid on the already limited inventory they had to choose from in the first place. August was the fourth straight month in which home sales activity remained on a downward trend. New homes sales jumped in August, in-line with the robust rebound in single-family housing completions. Low inventory levels have led to new homes being snatched up as soon as they become available. 

 

 

Weakening sales trends and uncertain outlook

 

However, the overall sales trend is weak and the outlook for housing remains uncertain. Nationwide, sales of previously owned homes fell 1.5 percent in August from a year earlier, according to the National Association of Realtors. The issue is the housing market is not functioning as expected given traditional forces of supply and demand. Inventories remain low despite the recent price increases, and new construction is slowing, not picking up. 

 

There is a weight on the supply of homes as builders are reluctant to take on new developments. The cost of building has sky rocketed with a shortage of skilled labor, land and material costs climbing. In addition, it is taking longer to build a home with regulations and red tape forcing builders to tie up capital for a longer time. A consequence of our own economic success, rising interest rates are starting to compound the problem because would-be sellers do not want to give up their low fixed rate loan, a phenomenon economist call the lock in effect. All in all, it’s not a conducive environment for buyers, sellers and developers to participate in a true open market.

 

Are we at the top?

 

While home prices climb through the roof, buyers have been cautioned that we may be near the top of the market, awaiting clarity. Summer’s anemic sales numbers were met with a rise in available inventory after Labor Day. More sellers have put their homes on the market, but buyers remain skittish. Available inventory in San Francisco has hit a 7-year high, now 12% higher on a year-over-year basis and 30% higher than it was just three years ago. 

 

An example of buyer fatigue is the fact that 14% of the active listings in San Francisco had a least one price reduction since the initial listing. Whether these are signs of a cool down in the market or a seasonal trend remains to be determined. 

 

As supply remains limited, we continue to see pent-up demand across the country, waiting for skyrocketing home prices to entice more sellers into listing their houses for sale. Total U.S. listings increased 11% year-over-year in August with the first increase in single-family homes listed in the past 3 years. With levels like these, one of the few incentives to act now is rising interest rates. With the cost of financing only projected to increase and no impetus for relief in inventory levels, we expect the housing market to remain firm for the foreseeable future. 

 

We can guide you on your housing decisions

 

If you’re in the market for a new home don’t count on an unforeseen catalyst to land the perfect home in your lap. Stay on the lookout for your perfect fit, it may be some time before you find something that suits you. Give us a call to discuss financing options or to assess general affordability given the current market environment.

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