SPRING 2022 QUARTERLY BLOG
What a crazy start to 2022! The market has been on fire the past 60 days because of FOMO (fear of missing out):
- Fear of being priced out of the market – “If I don’t buy now, I won’t be able to afford it later!”
- Fear of no inventory — “If I don’t buy this property now, there won’t be any more coming on the market!”
- Fear of interest rates increasing – “mortgage rates are going to rise fast!”
But don’t fret. Spring is around the corner – and what happens in spring? Weather gets better, sellers come out of hibernation, and people get happy and less anxious about the buying process. I wrote about the seasonal cycles to real estate in a 2017 newsletter and I still refer clients to it.
I have watched the market skyrocket with properties selling 10-20% more than just two months ago at the start of the year. That is a quick bump to home values. I attribute this to FOMO and if history continues, I expect the market to cool down in spring. That doesn’t mean prices are going to drop overnight, but the emotional premium that many sellers recognize early in the year typically goes away and you are left with offers that are more in line with comparable sales instead of an outlier offer. During spring you can see up to twice as many homes for sale in a given month. That’s a dramatic difference especially when a buyer doesn’t see a home in their price range for over a month.
How Many Homes Are For Sale Each Month?
Current Market Uncertainty
Inflation
It’s real, it’s here and it’s likely to get worse before it gets better. January hit a 40-year high of 7.5%. Oil has shot up past the eight-year high and continued supply chain issues exist. The Fed has been talking about inflation and that they will manage it, but that’s yet to be seen. (INSERT GRAPH – CPI)
Stock Market Volatility
NASDAQ - 6 MONTH HISTORY
You can expect a rollercoaster year with your stocks. But that’s not bad news, that’s opportunity! If you have a long-term horizon in your portfolio this is an opportunity to average into the market. The past six months has been brutal to tech stocks and that has hurt portfolios significantly more than inflation, for now. (INSERT MAMAA CHARTS)
- Many tech employees are impacted by lower stock prices
- Fear of leveraging into a large mortgage with unknown income since tied to stock price
- General uncertainty
Russia/Ukraine war
- What will the fallout be from sanctions and overall sentiment?
- Does Russia occupy Ukraine and if so, for how long?
- Rates have already started increasing, then dropped again with the Russia/Ukraine war. One of my lenders is saying they don’t plan to raise rates alongside of Fed increases since they have enough cash on hand for mortgages to fill 2022 obligations while another lender just sent me a “the time to buy is now because rates are going up” email.
Why is it important to understand the current market sentiment and uncertainties?
Most of our communities are impacted directly by the stock market because a significant part of employee compensation is stock value driven. When stock prices are down 40%, that makes a real financial impact, not to mention the emotional toll seeing your reduced brokerage balance. Additionally, it is reasonable that people fear leveraging into a large mortgage with less certain income. As an example, many buyers leave their down payment funds in their stock account until they need to sell for down payment. When I inquire timing to sell, I typically hear that their stocks don’t go down so the longer they can hold them, the more they make. Of course, I haven’t heard that statement in the past six months. Finally, general uncertainty is the catalyst for difficult decision making. When the future feels less certain it becomes difficult to make impactful decisions. I think that’s reasonable, but remember: the best opportunities come when most are idle.
Our Spring Market
SNAPSHOP OF TECH IN PAST 6 MONTHS
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In the past week it feels like we are moving into a spring market. I am watching the market extremely closely and noticing micro changes to activity, offers, prices, etc. Just last week in Los Altos there were two new listings that received zero offers until both agents had to call around and were able to generate a single offer on each. Whereas the week prior there were similar sales of homes that were less desirable and sold for higher prices. What a difference a week makes.
It's too early to call it a trend, but fatigue is real, and I see it every year, albeit maybe a few weeks +/- each year.
With all the uncertainty around us, real estate has stayed consistently strong. We are seeing historic high prices and I have never seen more urgency for homes as the past 60 days. However, I am currently seeing a shift in urgency even amongst my clients currently shopping for homes. I expect it this time of year, but with uncertainty in almost every part of our lives it is not if, but when it will impact the real estate market.
Selling
You have heard me say it before, property preparation prevents poor performance. Don’t let the buyer flip your home for a profit! Irrespective of the market climate, preparing your home will reap multipliers more than the investment if you know what to update. I work closely with my sellers to strategically update their home for sale – whether in 2 weeks or 2 months, the extent of improvements depends on the property and seller goals. I have grown this service for clients over the years and have really seen it become a huge value to my sellers. They can literally hand me the keys and I take it from there. The process of selling in any market is overwhelming, so having a plan and the right team makes all the difference.
I’ve said I think the first half of the year will be good to sellers, but with such an uncertain year, the second half of 2022 is unpredictable at this time. I think I’ll have a better sense of the 2nd half once we get into summer. By then the Fed will likely have given direction to fight inflation and those actions will be unfolding at which time we may get some stability back to the equities markets. Either way, I think there will be a better sense of direction come summer.
Buying
Buyers are having a difficult start to the year. The recent bump in values is difficult to stomach and demoralizing, but it does not continue on this trajectory. You must stay patient and focused. Opportunities come, they do every year, but you must be ready to act fast, not overthink it and know your non-negotiables upfront – that is crucial to making the right purchasing decision. With such a hot market and seeing current prices, I tell all buyers they should expect a market correction in the next three years. I think it’s important to point this out because real estate does have corrections. We can watch the signs and look at historical trends, but residential real estate is also emotional (you are buying a home for your family) so there is the human factor that constantly surprises.
I suggest buyers stay the course and stay alert. I know it’s exhausting, but if you let your guard down you will not be ready when the time is right. By no means do I think you should throw the kitchen sink at a property but working together we will make the most sensible decision for your family.
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