Here we are in early 2022 and you can feel it rumbling under the surface of the Real Estate market. A shift is coming if not already here. It’s not readily visible everywhere yet but two of the three big market drivers the last few years are headed to the exits if not already out the door. The market is going to look VERY different in 90 days and you better be ready for it.
Interest rates have jumped (UNDERSTATEMENT!). Almost as dramatically as they did in the spring of 1994. As late as December you could easily get a rate at 3% on your mortgage and if you were really well qualified and drove a hard bargain, 2.75%. No chance today! As of this writing the lowest rate a really well qualified buyer (800 credit score, $400K loan, Single family home) can expect is 4.875%. Some loans, condos, sub 740 scores are already north of 5%. This jump is coming as unpleasant and surprising news to borrowers!
The second driver of the market is the COVID situation in America. Even the cities, like Chicago that have had really strict COVID lockdowns are lifting them and attempting to reopen. That means that the last “stragglers” from the 2020 “I have to move no matter the cost” market of the last 18 months are about all that’s left! How many more potential buyers are driven by this real estate trend? I’d argue fewer than you think.
Finally, the third driver is that we do have the largest pool of 28-35 year olds that we have had in a generation. These folks, who we joked about living in their parents’ basements, are getting married, having kids of their own. They are the one unshakeable part of this market because now they have to get a house. As a country, we have not been building enough homes to accomodate them and now, we have a real problem. This is the one portion of the supply and demand equation that we can count on to stay strong in this market.
Do you realize that payments are up almost $1000 per month over the last few months? Not everyone has noticed the size of the change, but it’s real. Here is how: The house that in 2020 was priced at $375,000 is now a $475,000 house. That additional $100K, assuming you have to finance it is just over $500 per month. That, however, doesn’t factor in the increase in rate from 2.75% to 4.875%. That’s another $450 per month. Assume a property tax increase since 2020 and you are easily at $1000 per month!
In the conversations I am having with Real Estate Professionals, they are not seeing it, yet. I have talked to quite a few people this week and they are basically saying “the market is still gangbusters” and “we have multiple offers still”. On one level, they are right, it’s fine, your seller will still get under contract in 4 days and sell in 30, or 45 or 75 days, whatever works for them. But I have heard it’s 3, 4, 5 offers, not 22 like it was last fall. Add to this, consumers are just starting to understand and recognize the change in rates and its impact.
We had 52 pre approved shoppers in our pipeline as of January 1. Shoppers that could not find a house. Since January 16 of them are under contract but 18 of them quit! Now quitting is some version of it’s too expensive (rate or price), we will just rent another year or we can’t get what we want for this kind of money. Regardless, our shopping pipeline is down to just over 20. So that means that there are less buyers coming…soon! At some point, no matter the reason the amount of buyers interested in housing falls 60%, the supply/demand equation will change.
So, what do we do?
- Take a stake in your buyers and the lender they use. Trusted, local lenders will always be better at pre-approval, instilling confidence in your sellers & their agent and use local appraisers rather than “the cheapest” appraisal their panel has.
- Brush up on ARMs. In a market like this, lenders will look for ways to reduce the impact of the $1000 per month increase we discussed! Understand how they are part of the solution.
- Be confident in ENTIRE your market. Just because mortgage payments are up does not mean clients should put their head in the sand and rent! Rents are up too! And there is no tax deduction for rent, no opportunity to appreciate etc.
- Find as many young couples with small kids to sell to as you can. Build marketing to find them. They are needing homes, not wanting them!
Bottom line, the market is changing and it’s time to be a better salesperson. Bring the knowledge to serve your clients better and help them show up to their own rescue!
