Market Update: I Can't Believe It

Hi Everyone,

I hope that your 2023 is off to a great start and that you are as excited?for the upcoming M's season as I am!??

On April 1st (yes, April Fool's Day) I will be starting my 3rd decade in this amazing industry…and I have the gray hair to prove it!?During my career, there has been one famous and often repeated industry phrase that has driven me crazy: "Now is a great time to buy!"?In fact, there is only one other phrase I despise more in the entire English language.?It has something to do with the frequency with which my beloved?Cougs?find a way to not hold onto leads late in games.?Yes that is the one and no you don't need to say it, ever!?

Why do I roll my eyes when I hear real estate?professionals utter, "Now is a great time to buy!"??Simply put, the real estate industry has repeated and shouted that phrase over and over, in seller's markets and in buyer's markets.?They rarely stop to reflect and ask, "Is now?really?a good time for someone to buy?"?The constant use of this phrase has cheapened its value and hurt credibility between consumers and real estate professionals.?Simply put, that phrase fits a salesperson stereotype.??

My current dilemma is, for the first time since 2011, I want to use that phrase!?Ah heck with it, I?have?been using that phrase!?This is a much better time to be a buyer than in previous years.?Before I expand on that, let me first add a Barry Bond's size asterisk *.?It is not a good time to be a buyer if any of the following apply and it is better to rent or put off the purchase.?(Rent is not a 4 letter word, there are plenty of times that is the best fit and decision for someone.)

It is not a good time to be a buyer if…

• You are concerned about your job and potential loss of income.?
• You plan on being in the home or area less than 2-3 years.?
• You can qualify for the down payment, but the monthly payment will leave you stressed out, with depleted savings.?Nobody wants to enjoy their new home and have the heat set at 56 degrees.??
• You are unfamiliar with the area you would be purchasing in and want to try it out first.?

So why do I think now is a great time to buy despite?the slew of negative real estate headlines??Because of the slew of negative headlines!?Please see below for a sample of how negative housing sentiment currently is:

• Existing home sales fell for the 11th consecutive month in December, hitting the slowest pace since November 2010
• Homebuilder sentiment drops to a decade low?
• Mortgage demand falls again even as rates sink further?
• Consumer confidence in the housing market hits a new low?
• In October, just 16% of consumers said they thought now is a good time to buy a home??

As we discussed at length in this space, the market in recent years behaved in ways that it never had before: the great migration, working from home, and?many fundamental and emotional factors at work.?The real estate market (and the stock and crypto markets) was overheated and needed a bucket of cold water thrown on it and the Fed did just that in the summer of 2022—virtually bringing the market to a complete standstill by fall.?By December, mortgage applications dropped to levels not seen since Ken Griffey Jr patrolled CF for the Mariners.?

The chart below shows the annual percentage?change in pending (under contract) home sales nationwide over the past 20 years.?Look at those three extreme?swings since March 2020.?If an amusement park offered a ride with those dramatic swings up and down, they would get closed down!??

As we begin the new year, mortgage rates have pulled back from as high as 7.50% in October to within an inch of being under 6.00%.?While these rates are still high compared to recent years, we are starting to see more and more buyers make peace with the new reality?that interest rates have normalized.?Home prices have also fallen in some areas by 12-18% from peak multiple offer price extremes in the spring of 2022.?Inventory is also higher, leaving buyers with more quality options to choose from.?Contingencies are back!?What a novel idea—buyers always deserved to have an inspection contingency and a financing contingency (among others) for their protection.?The extreme seller's market caused those protections to be thrown right out the window in an effort for buyers to make their offer look more attractive in the eyes of a seller.??

In summary, prices have moderated, mortgage rates have pulled back, inventory options are more plentiful, and buyers have a bit of negotiating leverage (but less than they think).?The chart below does a fantastic job illustrating the positive impact on buyer affordability that mortgage rate AND price declines have.?A 26% decline in the monthly payment in some markets, just since November.?Does this mean it is nothing but blue skies and a new housing bull market is underway??I'm not going that far (yet).?However, I can see how 2023 will be a year of normalization—and healing—as the market gets its feet back underneath itself after several wild years.??

As the great Warren Buffett said:?“Be fearful when others are greedy, and greedy when others are fearful."?While I am not advocating for greed, the principle of being a buyer when others are fearful (media headlines above) rings true.?Now is a great time to buy!

Go M's,

Steve Curran