Post Covid? – Did I Really Just Say That?
Just over two years ago, the world was rocked by Covid-19. A year ago, I wrote about the changes in our market due to the virus. I thought it would be a good time to do that same analysis this year and see how things have progressed. This month, I’ll look back at how things started and how far we’ve come back, including the next big topic in our industry…. Pricing.
First Up, Home Inventory
On March 22nd, 2020, we learned of this thing called coronavirus and we experienced a very distinct change in the real estate market. The number of homes for sale began a downward slide from 3,570 homes on the market to almost exactly two years later, bottoming out 54% lower at 1,630 on March 16th, 2022. Since that date this year, the number of homes for sale has finally begun to rise. As we end the month of June, our for-sale count is up by almost 600 additional homes with over 2,200 homes on the market. But we still have a long way to go.
Pending Sales Are Down Considerably
The main topic of conversation the last two years has been about the record high number of homes in the sale pending stage throughout the year. In 2020, after it was apparent that Covid-19 was totally changing our real estate market, I identified a new phenomenon where the number of pending sales were building at record pace while the number of homes for sale was dropping.
I named the point where the number of homes in sale pending status exceeded the count of homes for sale, the Inverted Market. We have been in this inverted state since the 2nd quarter of 2020 and continue to be in it as of today. However, there are signs that we are heading back to a normal ratio of pendings and homes for sale. 2022 pending sales are markedly lower and more along the pace of 2020. At one-point last year, we had over twice as many homes in sale pending status as we had for sale. This made for the perfect storm of frantic buyers making offers within minutes of seeing a home, many times above list price and waiving contingencies such as inspections. 2022 has seen a little of this type of buyer activity this year, but nothing to the extent we did in 2021. In fact we are tracking more like 2020 did.
And Finally, Pricing In A Post Covid Real Estate Market
I do believe that a change is going to happen and that it will happen in the coming months. Homeowners are going to be the last to believe and accept that home prices have peaked. Afterall, who can blame them. They have been hearing nothing other than their neighbor’s, friend’s or co-worker’s home has sold for some extremely high price and likely within hours of hitting the market.
The last time that mortgage interest rates rose during a year was 2018. Granted, the rise was not anywhere close to the dramatic rise we have experienced in 2022, but there are lessons to be learned from that last rise.
What this graphic shows us is that a rise in mortgage interest rates is met by an increase in price reductions by home sellers. The last thing a home seller wants is to have their home on the market any longer than necessary. That would mean that they must keep their home in “ready to show” condition, be prepared to leave for showings, arrange to entertain kids and pets while strangers are looking at their home. Believe it or not, there was a time not that long ago that the typical marketing time from listing to offer acceptance was 30 to 60 days. (Longer if you were in the market back in the 1990’s.) Recent home sellers have been spoiled by quick offers and wondering what was wrong with their home when it didn’t sell after a couple weeks on the market.
The 2018 mortgage interest rate rise was 1% (3.95% to 4.95%) but happened over the course of 12 months. This caused 2019 to be the year that we saw most price reductions as home sellers did not want to be overpriced going into a spring market.
2022 has been greatly accelerated. We started off the year at 3.22% in January and as of the end of June, the same 30-year mortgage fixed rate was at 5.70%. That’s a move of over 2 1/2% in 6 months. In terms of buying dollars, a typical homebuyer from January could have spent $277,000 at the lower mortgage rate, but only $206,700 today ($70,000 less purchase power).
The Last Words
Be aware of the continued rise of mortgage interest rates. It looks as though mortgage rates have peaked, while in truth, it’s only paused. Inflation is still high and likely to go higher. The Federal Reserve isn’t finished either.
The days of pulling a home’s list price out of mid-air is coming to an end. You may have gotten away with it in the past, but no longer. I do not think that we will see a huge drop in home sale prices, but I am confident that double digit appreciation is over. We are beginning to see more price reductions as the summer months progress.
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VIA Group REALTORS
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