The Fed could begin tapering soon, adding momentum to market forces that have been pushing mortgage rates up in recent weeks…
Cooling Prices, Tighter Inventory And Less Competition
It looks like real estate agents will have time to pause and take in a breath of crisp, fall air as they transition from the summer to the fall real estate market, according to insights from industry experts.
Home price growth is slowing and buyers are a bit less frantic than earlier this year. Interest rates will likely remain low for the near future, and unfortunately, inventory will probably remain pretty tight as well. All that is to say, this fall will be business as usual for most agents.
“I think that this fall won’t throw too many surprises our way “said Daryl Fairweather, Redfin’s chief economist. “We can expect mortgage rates to stay pretty stable and for demand and supply to follow pretty much a normal seasonal pattern.”
Home price growth is peaking…
Annual home price growth in the U.S. has surged over the last year or so, and is continuing to set records. Annual appreciation was up 17.7 percent year over year in August, according to a recent report from Zillow.
However, month over month growth is finally showing signs of cooling. For the first time since January, home price appreciation actually slowed in August from the previous month, just appreciating 1.75 percent from July, in contrast to the 1.97 percent growth seen between June and July.
“If you look at any of our monthly reports, pretty much for most of this year, every month we’ve been saying, ‘record-high home price appreciation,’” Nicole Bachaud, an economic data analyst at Zillow, told Inman. “Every single month, it’s like new record, new record. So we are finally coming up to what we think is the peak.”
Not that home prices will come crashing down at any time soon — but growth may finally be gearing back toward normal levels again.
“It’s just that [prices are] going to rise less quickly than they are right now,” Bachaud added. “It’s moderation slowly back towards normal.”
Mortgage rates will hold steady…
Robert Heck, vice president of mortgage at online mortgage broker Morty, told Inman that mortgage rates should remain relatively low into the fall and for the foreseeable future.
“Looking forward to fall, most people are expecting things to loosen up and become a bit more transactional friendly on both the real estate side of things as well as the mortgage rate [side],” Heck said. “From a rate perspective, I don’t really expect things to change all that much, given everything that’s going on.”
The continuing threat of COVID-19 variants paired with simmering fears of inflation are two primary factors that Heck said will keep rates low for the time being. “The Federal Reserve has been pretty open about keeping [rates] accommodating to the extent that they can,” he added.
Inventory will mostly remain low
The number of seasonally adjusted new listings declined 6 percent in August from the previous year, the first time since February this figure saw a decrease, according to a Redfin report.
However, some markets have seen inventory growth, despite the national decline last month. A number of cities in Texas, for instance, saw an increase in inventory, according to Redfin’s report — Austin (new listings were up 14.3 percent YOY), Houston (up 12.6 percent), and McAllen (up 27.0 percent) all saw significant gains.
Tumi Demuren of RLAH Real Estate in Washington, D.C., Leilani Renteria of Slifer Denver, and Sheila Smith of RE/MAX Capital City in Boise all told Inman they’ve noticed a boost in inventory in their markets recently.
“There’s a lot of inventory,” said Demuren. “The buyers have a lot more properties to decide between.”
Still, the lasting power of an early September inventory boost is uncertain.
“Inventory is low by historical standards and I think it’s going to stay low by historical standards,” Fairweather said. “It might improve moderately from where it is now, but I’m not too optimistic about number of homes for sale getting anywhere close to where it was in 2019 and beginning of 2020 for the rest of the year, or in 2022.”
Bachaud said that with more millennials aging into their prime homebuying years, inventory will continue to be an issue moving forward until builders, and potentially new legislation, can address it.
“There are just not enough houses for everybody to have their own house right now,” she said. “So until we are able to add that new inventory, we’re going to continue to see this really tight supply, high demand and price increases. One of the best ways to combat that issue from a panel of economist experts that we surveyed is to relax zoning restrictions in order to increase the housing supply. So things like building higher density housing, building houses closer together, more houses on one plot of land, and also changing zoning regulations to make it easier for builders to build.”
Market competition will become less heated…
Some agents I spoke with were hesitant to go as far as to say the market is becoming “easy” for buyers moving into fall, but the buyer competition is definitely cooling and will likely continue to do so.
“I would say it’s not as difficult [for buyers now],” Jaime Ashley Campos, co-founder of Chicago Property Sisters at RE/MAX Loyalty, mentioned. “Before, in the summer months, we were going up against six, seven, eight offers. Maybe right now it’s one or two. But sales are just as strong.”
Renteria said the Denver market is still seeing some bidding wars on single-family homes, but in general, the buyer pool seems to be decreasing and it feels like they’ve started a seasonal slowdown.
“September has always started quieting down a bit in activity, so that hasn’t changed. We’re experiencing that right now,” she said.
For some agents, after such a crazy spring and summer, the slight cool down may feel a bit unnerving even. But, Demuren said that whatever slight anxiety he’s feeling about a fall slump, he just tries to focus on the things he can control.
“And the only thing I can control is the presentation of my unit,” he said.
Meanwhile, Smith said that she’s been trying to keep everything in perspective, because after the breakneck pace her team was running at over the last several months, any decline in activity is going to feel a little unusual at first.
“There’s been a lot of people kind of panicking because it’s no longer going crazy, but when you compare our inventory to a few months’ ago, it’s like, ‘wow things are really slowing down,’” Smith told Inman. “But, when you look at what our norm is and what our average is, we’re still going strong.”
“My house will sell in a week instead of [getting] five offers in one day,” she added.
Given the slowdown, Fairweather advised agents to reach out to buyers who may have decided to bow out of the market a few months ago to let them know that their chances are improving all the time.
“I think that agents should be aware there are probably buyers who gave up on the housing market earlier this year or last year who may be looking at the housing market again because rents are going up,” Fairweather said. “So I would encourage agents to go through their Rolodex and call back any of those clients that backed out because the market was too tough before because the market is a little bit easier now.”
Agents may need to do more management of buyer and seller expectations…
Even though the market is getting easier for buyers as the country shifts toward fall, it’s as important today for agents to establish realistic expectations for both buyers and sellers, so that they’re prepared for whatever is true in their local market.
Heck noted that, according to seasonal trends, the fall is typically a time when buyers are looking to nab a deal, and he expects that to be true this year as well, especially for buyers who are in tune with the recent slowdown.
“In general, that fall/winter cycle when people are looking to buy homes, they’re also hyper-focused on making sure they’re getting a good deal from a real estate and asset side of things, so I would expect that to definitely be a huge part of the fall buying season,” he said.
But Heck added that buyers may need to temper that expectation slightly with inventory still remaining tight, and may need to be open to expanding their search criteria a bit in order to get a deal this season.
“I think there will be opportunities there, 100 percent,” he said. “[But] this fall season of all fall seasons is probably going to be one where you’re less likely to find as much opportunity, just because I think there will be a lot of people also in the same camp looking for the same things.”
On the opposite side of the transaction, Renteria said she has already begun some tough conversations with her sellers about setting a realistic asking price on their homes.
“In very gentle terms, I basically shared with them that the market is — even though statistically it reflects that there’s a sellers market — one cannot become overconfident,” she said. “It’s all an individual, case-by-case basis. So we prepare the property, we price it well — we don’t price it too aggressively — we price it according to market. And we don’t know, it may not sell super quickly. Leading into the fall and winter it slows down a bit.”