by Eric Peterson
on Thursday, October 25th, 2018 at 1:29pm.
For years people have been asking me if the real estate market is going to “crash.”
One of the misconceptions about the real estate market is it is binary. In other words the market is either super hot or crashing. The truth is a normal real estate market is more balanced than we have seen in 10 years.
Nationally we are seeing statistics that indicate that real estate is shifting towards a more balanced market that may not favor buyers or sellers as much as we have seen in a long time. This doesn’t mean a crash but it will mean changes and those changes will create challenges in the market.
The best analogy I can come up with is imagine you have been driving 100 MPH and then you slow down to 50 MPH. You will still be moving forward but it will feel like you aren’t getting anywhere.
When the mortgage crisis hit we quickly moved from a seller’s market to a buyer’s market. Because Austin is so resilient our market recovered so fast we barely noticed there was a neutral market. Many homeowners and most Realtors have never lived through a balanced market and that will make it a confusing real estate environment.
If you are planning a move next year understanding what a balanced market will look like will make your move easier. Here are some of the changes you should be prepared for if in fact we do find ourselves in a balanced market in 2019.
Prices will continue to rise but not as fast as the last few years. Over the past few years many sellers have been able to price their home with a cherry on the top. In a balanced market buyers will be more hesitant to pay prices they consider above market value.
Buyers will have more choices. Based on the number of investors who have contacted me about selling their home next year when their leases expire we will see more homes on the market in 2019 compared to this year.
Buyers will lose purchasing power with higher interest rates. If interest rates reach the mid 5% range as expected first time homebuyers will be surprised at their loss of buying power. Some of those buyers will continue to expand their search further out. New construction will be more competition due to financing incentives builders can offer that are not available to buyers of resale homes. Some move up buyers will look at their current interest rate and when they compare it to current rates they will be less motivated to purchase a larger home.
Staging and improvements will be more important for seller success. A balanced market means real estate will become both a price war and beauty contest. Sellers in a rapidly appreciating market have the luxury of the market hiding defects but in a balanced market buyers will be pickier.
Negotiations will be more critical as neither buyers nor sellers have the upper hand. Sellers won’t be able to push around buyers in a balanced market. This will take some adjustment from sellers as well as Realtors. Agents who have only been in business since 2013 may be confused by how buyers act in a balanced market. Realtors with experience and savvy negotiation skills will be even more valuable to sellers.
Sellers will experience fewer showings and selling over list price will be uncommon. Overall buyers will have less urgency which means fewer showings when a home comes on the market. Sellers will need to temper their expectations of receiving multiple offers and selling over list price as buyers will be more likely to wait.