After a week of Super Bowl excitement we said good-bye last Monday to our out-of-town guests and welcomed the (un)official beginning of the SPRING REAL ESTATE MARKET. Meanwhile, the stock market was suddenly heaving. You may be thinking about your portfolio and wondering about the current value of your home.
Well here is some good news–chances are your home’s value is at its all-time high right now, and likely up quite a bit since last fall. In fact, I believe we are on the cusp of an EPIC spring market for sellers, and an epically challenging and potentially very stressful one for buyers.
The high home values we are seeing are being driven by super-low supply. While there are some questions about the stock market as we begin to experience some volatility for the first time in over two years, Twin Cities real-estate is marching along a pattern that’s been well-set for around five years now. It’s really been remarkable to watch the continuous, steady decline in inventory of homes for sale since 2011. It seems like you could pick any day or week or month in the past 5 years, and if you looked back to that very same day, week or month one year PRIOR, you’d see about a 15% to 20% decline in residential properties for sale. This has predictably lead to a steady appreciation in home values, as well as increasing frustration levels among those looking to enter the homeownership ranks.
The only thing different about 2018 so far is that the decline has been even more extreme. One year ago there were 34% more homes on the market than there are right now. You read that right—34% more. And in fact we have HALF the inventory that we did two years ago. On top of that, interest rates are going up—they’ve risen nearly a full percentage point in the last 2 months, to a 4-year high, adding even more urgency for buyers as they begin to see their purchasing power diminish.
This explains why I’ve seen properties that I would consider “marginally marketable” in a balanced market sell in the past month in multiple offers for as much as 10% or more above list price. At some point, and I believe it could be sometime later this year, the rising home prices and rising interest rates will negatively affect demand to the point where values may flatten or even recede a bit for a time. But before that happens, I do expect some really big wins for some sellers, especially those in the hottest areas of the city and in lower price points., and of course those who prepare and market their home in a way to take full advantage of these unique market conditions.
Anyone in one or more of the below categories may be especially positioned to capitalize on this market:
- Those moving from “closer-in” to “further-out.” In general, supply-demand is most out of balance in the cities and closest-in suburbs.
- Those “moving up” to a higher price segment. In general, inventory loosens up as you go up in price, especially above $450,000 in the areas I work in the most.
- Those who may live in a house that some may consider vulnerable in a buyer’s market. For example, houses on a busy street, or very near a highway, or with some prominent idiosyncrasies. These homes are selling fast right now. In a slower market, they often sit for months or sell at discounts compared to comparable homes that do not share those idiosyncracies.
- Houses that are getting a little dated or maybe owned by sellers who have no time or energy to make updates and get a house ready to show. While I almost always advocate “doing a little to get a lot more and a quicker sale,” the market is so bent in favor of sellers right now that homes that may not appear market-ready are able to sell quickly. It is especially useful to explore marketing these houses “off-MLS” for various reasons I am always happy to get into during a consultation with a prospective seller.
Incidentally, I have just penned a twin blog to this one–and you can check it out right here–that explains how top Realtors track important supply-demand data in various market segments in our broader Twin Cities Real Estate Market. It’s called the absorption rate, or seller-to-buyer ratio, and it’s probably the single most important metric to understand when gauging the current state of any given segment of the real estate market. This blog explains how we use MLS data to identify ratios, and provides several specific ratios for various price points in some of the areas I work most often. It’s pretty interesting to see how different areas and price points compare.
A couple disclaimers before I sign off. As I alluded to above, it may be the most epic seller’s market of all-time, but it still absolutely pays for sellers to follow a thoughtful plan to ensure the most positive outcomes. There are important strategic approaches to the market that every seller should be aware of and consider given their unique circumstances. This is not a market for amateurs, so if you or anyone you know might be a seller in 2018, please let me know so that I can help them make the best possible decisions for their families and their portfolios.
Perhaps even more importantly, I’d like to reach out with an important message to buyers and those who are looking to sell-then-buy in this market: While the situation for you may seem next-to-impossible, I assure you there are ways to operate within the current constraints of the market and achieve your real estate goals. In fact, just today I wrapped up a contract for a buyer who also has a home to sell. I was able to get this client’s home sold off-market and secure a rent-back agreement from her buyer, which bought her an extra couple months to shop for a new home in a very tight market. I was then able to identify a listing that fit her needs before it came on the market, and quickly secure it. She only had to look at 3 properties, and she’s delighted with what I found for her. There is no reason to doubt that you or someone you know could be next. In the right hands, anything and everything is still within reach!
Yours in all things real-estate, Tim