It Looks Like the Seller’s Market Is Coming to an End

February 20, 2014 No Comments »
It Looks Like the Seller’s Market Is Coming to an End

Many people will look back at 2013 with regret, perhaps realizing that there was a golden opportunity to purchase a home at a major discount. And snag a record low mortgage rate to boot.

Today, home prices aren’t so low, nor are mortgage rates. Yes, they’re both lower than they were during the previous boom, but they’re markedly higher than they were just 12 months earlier.

What’s clear today is that real estate cycles move fast, if the last few years were any indication.

Back in 2011 and 2012, most didn’t want to touch real estate with a 10-foot pole, but in early 2013, it became a manic buying frenzy.

There weren’t enough homes on the market to quench the appetite of hungry buyers nationwide.

And the few homes that did come to market went to all-cash buyers, aka investors with deep pockets. New families and first-time home buyers simply got outbid and moved on to the next property.

Often, that next property wasn’t their dream home, nor did it fit their original needs. But the desire to get in a house, any house, was strong. Feverish even.  Not exactly ideal conditions.

Fast forward to early 2014 and for sale signs are collecting dust, getting sun or snow damage, and falling apart. There’s even talk of another housing bubble.

Scan your local listings and you’ll probably see a fair amount of properties that have been on the market for months, if not more than a year.

In Between a Seller’s and Buyer’s Market

Unfortunately, it’s not necessarily a buyer’s market either. The reason properties are stagnating and inventory is beginning to rise is because the rent vs. buy ratio isn’t all that favorable for the latter.

If you do the math, it could make sense to buy that home, but it’s not nearly as compelling as it was just a year ago.

In 2013, it was a veritable no-brainer in most cases. Today, it could go either way. It’s becoming balanced, one could say.

The problem is that many homeowners looking to list their homes still think real estate is white-hot, meaning expectations to book a generous profit far exceed reality.

There’s also the issue of affordability, which has kind of crept into the headlines lately. Most media still put forth the idea that “it’s a great time to buy,” but among those rosy outlooks are disturbing affordability issues.

After all, there are consequences when home prices surge and mortgage rates climb back to more normal levels. And this would be fine if the economy was chugging along again and prospective home buyers were getting raises and socking away more money.

But that’s not really the case at the moment. Things are still very tenuous at best.

Beware of the Coming Investor Selloff

Adding to the wobbly economic outlook is the fact that investors own a ton of homes across America.

And word on the street is they don’t plan to hold them very long. A survey issued last week by Zillow indicated that most economists, real estate experts, and market strategists believe investors will sell the majority of homes in their portfolios during the next three to five years.

In other words, lots of inventory will make its way to market, perhaps all in a small window of time.

That might explain why panelists polled by Zillow also expect home appreciation to slow considerably in the next few years.

On average, 4.5% appreciation is expected through the end of 2014, followed by 3.8% in 2015 and 3.3% by 2018, figures closer to historic norms, and nowhere near what we experienced over the past 12 months.

Zillow also noted that home values increased just 0.2% from December to January, the slowest pace in 18 months.

You can blame the weather, or seasonal patterns, but the number of properties listed on Zillow increased 11.1% on a seasonally adjusted basis in January from a year earlier, the fifth straight month year-over-year inventory went up.

Expect that to continue as more homeowners gain enough home equity to sell, and investors cash in after a couple of amazing years.

If you’re a buyer, it’s going to get easier to purchase a home as time goes on, you just might pay more than you’d like. But at least you won’t be involved in a bidding war…and heck, you might even get some seller concessions!

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