If you turn on the news, chances are you have many questions about the economy and housing prices. Are we heading into a buyer’s market? What does that even mean? Can homes still be sold in this environment?
To find out the answer to some of these questions, we sat down with founder Jim Greene, who talked about the transitional market we are currently in, and how sellers can better prepare themselves.
Q: What market are we in right now?
A: It's a transitional market. We haven't had a transitional market for quite some time. It's probably been a very strong seller's market for the last ten years. Real estate is always in cycles. We go from seller’s markets to buyer markets all the time, and we are in one of these transitional markets where it's going from a seller's market to more of a buyer's market.
That means buyers are starting to gain some advantage when it comes to negotiating purchase and sales agreements when they go out and buy homes. Buyers can take longer to make a decision, which means that the days-on-market for a seller will start lengthening. Buyers are starting to feel like they have some negotiation power, so sellers may not have the luxury of seeing increased offers, escalation offers, or all-cash offers up-front. People often think it must be because there is a lot more supply than demand in the market, and that’s true, but other factors can create a transitional market. For instance, we all know interest rates are going up, and when they do, buyers typically don't have as much bang for their buck. A lot of times, they might pause, so you'll see demand decrease. This interest rate environment is causing some buyers to either take a step on the sidelines. They're just waiting to see what's going to happen with inflation.
They're also waiting to see what's going to happen as we enter into the fall and winter markets when decreasing inventory is pretty normal.
Right now, we’re historically low. Even though we’ve increased this year over last, we still have a historically limited amount of supply. I think what we're seeing is a transitional market based upon the interest rate environment, affordability index (the fact that you just cannot get as much for your money as you were able to in the past), and a lot of the first-time home buyers have been priced out of the market over the last couple of years. So, here comes this buyer's market. Historically, a buyer’s market typically evolves into a seller's market every seven years. This has been closer to 12 years. We knew it was coming. You just didn't know when and for how long. It could last for a while or change again next year if interest rates come back down. So we'll see.
Either way, the dialogue we're having with sellers now is so different from what it was at the beginning of the year. We have to provide them with good information. We have to continually update them on the prices of homes and be honest about what type of offers they will get.
Q: Where will this market end up?
A: I don't have a crystal ball and can't predict future markets, but I can talk about past markets and what I experienced when I got into the business in the mid-90s. There are so many factors that are going to dictate how quickly we move through this market. The number one factor is the cost of money and the affordability index. Right now, we’re at historic levels in the gap between the median home sales price and the average wages in Thurston County.
We have increased our values by 35% to 40% over the last two or three years, yet we haven't increased wages or income based on that. All of a sudden, we have these inflated prices, we haven't kept up on wages, and when we combine these factors with interest rates based upon inflation, it can lead to the market we are entering into.
Q: What can sellers do to sell their homes in today’s transitional market?
A: Number one, they have to have a realistic price. They have to have good information, and not on homes that sold six months ago. Six months ago, we had homes increasing substantially above the listing price. At this point, I want sellers to understand their competition. So, we are looking at active listings versus sold listings six months ago.
The other thing I’m telling sellers and agents about is making sure that the house is ready for sale. We were able to sell houses six months ago without doing a ton because buyers were coming out of the woodwork. Today, we’re seeing buyers take way more time looking at properties. A buyer might go back to a house three times before deciding whether to buy or not. They’re also looking at competition and are now deciding based on what they like. So sellers need to make sure the property is as presentable as possible.
So, I’m asking sellers to ensure they’ve done major repairs. I’m asking sellers to make sure they’ve done normal maintenance. Make sure that the house is ready to sell.
You have to understand that the buyers have greater choices, and if you want the buyers to be more engaged in the transaction, you have to be more negotiable regarding repairs and maintenance. You have to work to show your home in the best light because you now have competition.