Change can be scary. Change is always messy. Change often hurts. The old guard hates change because they created the status quo. The status quo makes sense to them. They thrived in it and they are not bad people for wanting it to continue.
But change creates new beginnings. New options. New ways of doing things. Cars didn’t replace horses overnight. For a while both horses and cars traveled the same roads. Over time, the faster, easier, more efficient option tipped the scales and the role of the horse changed.
Our ability to adapt is why we survive. Our ability to create is how we thrive. In real estate, now it is time to create. The old rules are changing, by how much, we do not yet know.
The residential real estate market is, well, not fun right now for industry participants. It is not great for buyers who waited too long on the sidelines. It is not great for the buyers who think it is a good time to continue to wait.
I have been a title rep (I sell title insurance) for 20 years and I have yet to see a normal market. (I suppose, in 2014 we had one for a minute. But it was around then that buyers realized Greater Phoenix is an awesome place to live and the builders hadn’t meaningfully built anything in 6 years)
As always, the law of supply and demand rules. From 2014, aside from a brief studder step in the spring of 2020, prices increased until May 2022. The Greater Phoenix median sales price bottomed out at $110,000 in February 2011 and peaked at $480,000 in May 2022. That is a 336% increase in 11 years.
Prior to 2000, the residential average annual appreciation was around 3%. In the first 20 years of the 2000’s it jumped to 4-6% a year. The 45% we saw in 2005, the 28% we saw in 2021, even the 18% we saw in 2020 are anomalies. In 2019, we had 8% appreciation and in early 2020, when Tina Tamboer said we could see upwards of 10% appreciation in a year, I got nervous. 10% appreciation in a year is too much.
As 2023 winds down and we reflect on the year that was and the year that is coming. I have a lot of hope for next year, always do, but I also always remember that hope is not a strategy. It does make the grind easier. Prices are actually up this year, despite the lack of expectation of appreciation.
Today’s buyers have proven far more resilient than we expected. Why? Here is the secret, it is simple, in 2009:
“We started originating traditional, boring 30-year fixed-rate mortgage loans with guidelines that ensured borrowers were qualified. So the risk we face now isn’t with the mortgage loan itself, like in the past — the risk is where we are in the economic cycle and people losing their jobs.”
— Logan mohtashami, Housingwire
We don’t talk about those boring borrowers. We don’t talk about those boring buyers. They are the foundation, not exciting, and they have always been there. The difference is today, they are our only buyers. The interest rate changes have scared off a lot of our buyers. 3% mortgage rates are not coming back, but neither are 18% rates. There is no current looming foreclosure crisis.
Two weeks ago, we had a 3% week over week increase in purchase mortgage applications and last week we had a 4% increase. That 3% spike took place in 3 business days. Today’s buyers are watching the market so closely that, as soon as mortgage rates adjust down, the buyers immediately write contracts.
For those of us in the industry, there will always be home sellers and home buyers. The number of them out in the market at any given time will always depend on outside influences, but ours is a market that always continues. Residential real estate is about 18% of GDP, the Federal government does not want to destroy such a large sector.
It is not surprising that inventory has increased. Buyers are not excited about the price increases and higher interest rates. As interest rates fall more buyers enter the market. If and when the mortgage interest rate spread above the Fed funds rates gets shrinks, interest rates will fall and that will make a giant impact on our market. Typically, that spread is about 170 basis points or 1.7% but now it is running 300 basis points which is a 3% spread.
NAR’s chief economist, Dr. Lawrence Yun predicts a 15% increase in purchase contracts if interest rates decline below 7%. Others predict we will have an even larger increase if rates go down to 6.5%.
As I sit here, on a Monday afternoon, days after Thanksgiving, thinking about 2023 and hoping for a good 2024, I ask: what did we do right? What did we do wrong? What can we learn from what happened? What can we do better? These are important questions to ask as we face down another new year.
- Roughly half of the industry players in Greater Phoenix, lived through the 2008 market crash. Those of us still around have a bit of PTSD but also have the confidence to know that this too shall pass. For the half that is new since after the Great Recession; this too shall pass.
- We learned, we pivoted, we learned more. Bottom line: if you want to sell a house, do not overprice it.
- If you are an industry participant, like me, we have to prove our value to the consumer. Every.Single.Day. No days off.
These are the days of good, actionable advice, these are the days of listening and practicality. What matters is the consumer and their needs. If you don’t listen to them, someone else will.
Change isn’t coming. Change is here. Are you ready?
“It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself in a worth cause; who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.”
— Theodore Roosevelt
Sarah Perkins is an award winning account executive and has been in title sales since 2004. As the Director of Industry Research & Senior Account Executive, Sarah’s role is to bring real estate transactions to Navi Title. Sarah supports her clients by helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.