Adjusting quickly when there’s a shift…
Here’s a fact that will not surprise anyone, anywhere: things change. Everything from political parties to fashion, music and design—everything is in constant motion. Shifting and adjusting, no sooner peaking in one place and then pivoting to the next. Few things in life stay constant for very long.
All change is brought about by some force or event, which leaves everyone else to adjust. For example, the Behr Paint 2018 Color of the Year is called “In The Moment.” (I’m sure there’s an ironic joke here, but I’ll let you figure that out for yourself.). According to the Behr website: “This cool, tranquil, spruce blue is inspired by nature and is a soothing, restorative coalescence of blue, gray and green.” How nice.
Right now, there are a handful of people in a room somewhere at Behr headquarters deciding what will be the “It” color of 2019. And a bunch of folks who have half a can of “In The Moment” left over will suddenly have no use for it anymore. (I’m kidding of course. They’ve already decided—the 2019 color is “Blueprint,” if you want to get a head start on repainting your dining room.)
My point being, someone or something causes a change, and the rest of us have to catch up. So it is with the real estate market. The banking collapse of late 2008 led to wide-ranging changes in lending. That change led to a slowdown in home sales. That left home builders with a glut of new construction. And it meant people who would have sold and moved ended up not selling and staying. And that led to a rise in foreclosures. Pivot. Correct. Adjust.
There’s a secret behind this truism. When a shift occurs, the party now at a disadvantage doesn’t realize it at first. Here’s what I mean. When real estate is in a buyer’s market, buyers think they have plenty of time to decide. They think they can make low offers and sellers will accept. They think they can pack their offer with lots of extras, because they think sellers are more desperate.
But when that starts to change, buyers don’t realize it at first. Two years ago, when inventory began to shrink, sellers noticed they had more showings. Then inventory shrank some more, and you started to hear about multiple offer situations. Then shrinking inventory began to seep into different price points, and different locations… before the buyers realized it, it was a seller’s market. None of those old tactics worked anymore, and buyers were slow to realize that now they had to compete for a good home.
Of course, buyers have adjusted over the past few years. They know where they stand and what they have to do. Sellers have adjusted too, and they like the way things are now. Everybody has that friend or neighbor who put a sign in their yard and had people lined up down the street to see the house. Sellers really enjoy the fact that, for now, they’re in control.
I don’t foresee that changing drastically in the coming 12 months. Inventory will likely still be tight, but interest rates are also going to go up. That creates a balancing effect, because while buyers do want to buy homes, they have to be careful not to overspend. And whatever they can afford now, it’ll be less after two or three rate hikes.
All of which leads me to a warning for sellers. At some point, either in 2019 or shortly thereafter, there will be a shift. It will probably be slight, not severe. The dynamics will shift gradually away from a full-on seller’s market, and will move more towards a balanced market. This is healthy, by the way. Sustained buyer’s OR seller’s markets don’t contribute to long term market stability.
When this happens, homes will not sell as fast. Buyers won’t pay over list price as frequently as they do now. Most importantly, the trajectory of rising home prices will start to flatten. Notice I didn’t say “go completely flat.” Homes will still appreciate, your equity and your home values will still be safe. It just won’t be what you’ve come to expect, or what we’re all used to.
I say this now to prepare all homeowners who may be sellers over the next year or so. For now, you’re still in the driver’s seat. But be prepared to adjust quickly when the market changes. The wise seller will stay ahead of the curve, not hold out and end up chasing it.
After all, nobody wants to be that “In The Moment” guy. That’s so 2018.