I’ve written before about interest rates going up and prices fluctuating. Now, as we circle the 8% mark for interest rates – still historically low but an unprecedented high for recent years – it’s critical to take note of how these factors are slowing down the market and making pricing a home more important than ever. Here’s my take on pricing, interest rates and inventory from a home seller’s perspective.
One of the key pieces of information to take into consideration when pricing a home is comparable sales (comps), and I’m not talking about that house across the block and what it sold for two years ago. I’m talking about looking at what the comps are right now. We were in a completely different environment two years ago, when we had drastically lower interest rates and a Housing Affordability Index ratio. Today, the Housing Affordability Index ratio has dropped; market conditions have noticeably shrunken the buyer pool and inventory is slowly increasing, which impacts the sales price of current homes on the market.
And let’s talk for a minute about those homes that are on the market. I keep hearing people say there’s nothing on the market at the moment and it’s simply not true. In San Fernando Valley, inventory jumped about 17% last month and though inventory is still historically low, it is on an upward trajectory. With more selection and buyers leaving the market due to affordability concerns, we’re left in a bit of a wait-and-see mode.
The bottom line during this waiting period? If your house is not priced right and you’re pushing it too far, people are going to move on then move in … to the next house.
A home’s condition is also crucial in today’s market. The quality of photos and visuals make a difference, and small, cosmetic repairs can have a big impact, too. How a property looks online and in person impacts its marketability and saleability. If buyers are going to pay these higher prices and higher interest rates, either they might not have the available funds for necessary maintenance work or they simply don’t have the time or desire to do the work. The more cosmetically redone your home is, the less buyers will have to do or fix to maintain it, and the faster your property will rise in the selection process. And with these higher rates, I’m also seeing higher down payments; people don’t want those giant loans with big interest rates.
On the subject of contracts, we’re starting to see a lot of sellers buying down the interest rate as a teaser to get people to pay attention to their property. I spoke about this several months ago, but 2:1 or 3:1 buydowns are still trending. A seller will get the interest rate down for two or three years, and even though it’s all trading dollars, it does give the buyer a little more peace of mind as rates continue to rise.
There’s one thing to note about this trend: Some sellers think they can get over value for their home if they offer a buydown but it’s not usually the case. A buydown is a facilitator, not a solution. In my opinion, offering a buydown isn’t going to get someone to pay extra for your house, though it may help entice someone to select it. At the end of the day, when a home is priced right, sellers don’t need too many financial incentives. The house will sell. It may not sell in 10 or 12 multiple offers, but it will sell.
Another trend? Contingent offers. Because so many people have exited the buyer pool, those buyers left swimming are either flush with money from a house they sold or need to sell, or they’re getting some kind of assistance for a cash offer. These buyers will say, “Yeah, I’ll buy your house if they’ll sell mine.”
You really have to be careful with contingent offers and as a listing agent, I’ll always go to the contingent property to see if it’s actually sellable and at what price they’re marketing the home. This way, I’ll know we’re not wasting everyone’s time.
All that said, I’ve done several successful contingent offers this year and they’ve worked out just fine. Sometimes the contingent buyer might offer a better price or closer to the asking price if a seller takes the contingency, though it’s definitely more of an unknown. The buyer doesn’t know when they’ll sell their house, and it’s another link in the real estate chain that could potentially slow down the deal. Other times, the house sells quickly and the contingent offer makes all the difference, and even allows a seller to accept an offer that is sometimes hundreds of thousands of dollars higher than non-contingent offers. If you don’t have an immediate need to move, a contingent offer can get you a premium price for your home.
To sum up our real estate landscape: The buyer pool has decreased. Listing inventory is slowly increasing, and I believe this will be a continued trend for the rest of the year. We’ve hit a plateau in terms of pricing and we’re waiting for prices to either go up or go down, so if you really need to move, you might as well get the show on the road and do it today before even more inventory hits the market.
Everyone wants to sell high and buy low but in reality, it never works when you’re trying to do it at the same time. What does work is partnering with an experienced real estate professional who can take a look at your particular real estate and lifestyle needs then expertly offer guidance on how to take advantage of current market conditions to make them work for you.
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Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 • andrew@andrewmanning.com