The only thing that remains the same is change

As 2013 begins to wind down, our real estate market seems to be following suit. As we reported last month, demand has dampened significantly. Many observers will attribute this to the “seasonal effect” – meaning that the market has its peaks and valleys every year in a somewhat predictable pattern – the fall season being one of the valleys. They would be wrong; this is beyond the season. This fall, pending listings are falling faster in 2013 than any fall since 2000. To restate again what is causing the steep drop in demand, as much as the psychology of buyers can be generalized, here is what we believe is happening:

1. Interest rates escalated rapidly (as a point, rates rise rapidly but drop slowly). The fact that they have now stabilized for the time being seems to be offering only a small amount of comfort to buyers.

2. Two years of price increases has made our fame as “one of the best bargains in the country” suddenly no longer true. The fact that our market is still below the hard cost of commodities (roofing, concrete, drywall, etc.) and below the inflation/appreciation trend line of the last 12 years seems, at the moment irrelevant to buyers.

3. Investors are dropping out of the market. Currently investors make up around 19% of the sales. This is the lowest percentage since June 2010. Even just a year ago the number was closer to 29%.

4. The economy, government shutdown, and threats of government debt defaults aren’t exactly instilling confidence in the buying public. When the future seems uncertain, the emotions that run the financial markets can turn from greed to fear. It would seem that fear is dominating at the moment.

So what will fix the demand problem? Well, usually price would be the answer to lowered demand. In this case, we are not expecting to see any major pricing drops. More likely than any significant pricing drops is that price appreciation is likely to come to a halt until the demand issues recover.

What is the message to sellers? We are now in a balanced market. If you have been waiting for prices to peak or flatten before selling – this is likely the time. A balanced market also means sellers may be required to be more flexible in contract negotiations, the days of multiple offers may become scarcer, and the choice of agent will matter more than ever.

The message to buyers? Ease your fears. Rates and home prices are both still under market norms. Choices of homes are finally becoming abundant and that should be welcome news for choice starved buyers.

How long will this last and what will 2014 bring? Whatever it is we will do our best to keep you posted on this ever changing market. What never changes for us is our deep gratitude to our clients who have allowed us to serve them this year and years past. We hope you have a joyful holiday season!