Trying to time the real estate market?
Your time is up. Actually, your time was up a few weeks ago but the general public hasn’t felt it since the news has yet to make the national media channels. National housing data for the real estate market comes 2-3 months late and it typically takes a couple more weeks before the masses to start paying attention. The Great Deceleration of real estate list prices has begun and it happened swiftly.
Fortunately for you, we aren’t the masses. We are the knowledgeable Tampa Bay real estate professionals, constantly keeping our finger on the pulse of the real estate market (nationally and locally).
Here is what you need to know about today’s real estate market in Tampa Bay and Nationally..
The real estate days of multiple offers and bidding wars are over
If you are buying a home this news probably thrills you! The highly competitive real estate market over the past 2 years has been EXHAUSTING for home buyers. Open houses were seeing 40+ groups showing up and lining out the door. Sellers were bombarded with 20, 30 and sometimes more than 40 offers on their home. Which meant dozens of disappointed home buyers.
If you are selling your home you might not be as thrilled with this news.
Don’t fret. You are still in a great market to sell your home. The list prices are decelerating, not your home values. Home values are actually still on the rise. The rate of increase is the only thing that has slowed down.
In an article on June 7, 2022, Fortune Magazine coined the term “The Great Deceleration” to describe the cooling of the housing market. The US housing market saw a price increase of 20.6% from March 2021 to March 2022. The article stated, “don’t get confused by lagging home price data: All signs point to a slowdown in the rate of home price growth.”
So what does “slowdown in the rate of home price growth” mean for the Tampa Bay real estate market?
If you just bought a home, you may be worried that you just overpaid. Don’t fret. Your value is still there.
Let’s look at this example of a $500,000 home value to give some perspective:
In the past 2 years home prices have experienced a 24-28% YOY (year over year) increase in Tampa Bay. Using a $500,000 home value purchased last year means your home with a 25% YOY increase would now be worth $625,000! That’s crazy! And it is exactly what we have experienced in the past two years.
A slowdown in the rate of home price growth doesn’t mean you are losing value. It means you can now expect a more modest YOY increase.
What is modest? Historically real estate values have seen an average annual increase of 3-4% (yes, this takes into account the bubbles and bursts). With the deceleration of the real estate market, you can expect this to be 10-14% YOY for the immediate future.
What factors caused such a demand for housing? Let’s take a look at some of the most common ones:
- Covid pandemic – this one disrupted our market in more ways than one. Factories shut down causing supply chain shortages. People no longer wanted to live in condominiums with shared amenities. Work from home meant more people were able to choose where they lived.
- Housing shortage – 15 years of substantially low housing starts was caused by the big losses so many builders experienced during the Great Recession.
- Historically low interest rates for the previous 5 years made everyone feel like there was free money to be had.
- The millennial population – over 82 million young adults ranging from 24-39 came of home buying age.
These factors plus others led to unprecedented 20-30% (depending on your location) home price increases across the country.
What to expect moving forward
Going back to the example of the $500,000 home value, let’s look at a modest 10% YOY increase. Your $500,000 purchase this year would be worth $550,000 this time next year. Still a great return!! And one you are not getting in the stock market currently.
“Pandemic Growth doesn’t equal Forever Growth” – Morning Brew
The days of sellers “testing” the market are coming to an end (if it hasn’t ended already). Back to the days of pricing your home competitively. Buyers are leery. They want to see the value. If you are planning to sell your home, expect it to take a few weeks.
How will the rise of interest rates impact the real estate market?
The real estate market of the late 70s and early 80s might be a far memory or one you never experienced. However, history always has something to teach us. I grew up in a real estate family and just remember having steak on nights that a contract was written and whatever concoction we could come up with on nights with no contracts (we didn’t have steak often).
As Nicholas Gerli of Reventure Consulting wrote, “Real estate was arguably the best performing asset class of the decade, far outpacing the stock market. The median price of a home in the US more than doubled from $24,000 in 1970 to $55,000 by 1980. Meanwhile the Dow Jones Index only increased by a meager 17% over the same time frame. And so the perception of real estate, a strong hedge against inflation was born.”
Buying real estate as a long term investment, rather your primary home or an investment property, is still a great hedge against inflation. However, investors are fearful and have already started pulling out of the market. According to a recent article by the National Association of Realtors, investor purchases nationally dropped 11.5% in the first quarter of 2022. The Tampa Bay area saw a 16.5% decrease of investor purchases compared to the previous quarter.
Should I buy a home in this market?
Should I sell my home in this market?
If you are wondering if now is a good time to buy a home or sell a home the answer is simple –
It depends 🙂
Everyone’s situation and goals are different. The best question isn’t “Should I buy a home?” or “Should I sell my home?”
The best question is WHY?
Why are you buying a home? Are you tired of paying increased rents? Are you ready to settle into your home and start building wealth? Do you plan to own the home at least 5 years?
Why are you selling your home? Have you outgrown it, or maybe it is time to downsize? Are you changing locations? Are you afraid if you don’t sell now you have missed your opportunity to maximize your gains?
To understand if it is the right time for you, give YES-Homes a call and let’s discuss your personal real estate goals.
