2023 Spring Market Review

It happened.  Another early-spring market filled with multiple offers, motivated buyers, and sellers in many communities realizing higher sales prices than the previous quarter.  Yes, there is still plenty of uncertainty in the markets, both at a micro and macro level, but I’m seeing a tale of two cities. One where a contingent of buyers think the market is going to crash and everything is over-priced, regardless of the listing price, and another that recognizes we are in a calm before the storm and wants to capitalize on less competition and discounts from peak valuations. 

Especially in the past 30 days, I’m seeing this dichotomy take shape and I am watching it with hyper-focus as the number of offers or disclosures out on a property right now is not providing much guidance to final sales price.  As I mentioned in my winter article, neighborhood prices near the end of 2022 were off peak 10-20%, but I’m already seeing a bounce off that bottom and arguably a rebound 5% or more in the past month (mainly to single family homes).  You will not see these figures in the averages or median house prices, but I watch neighborhoods closely and specifically similar home sales for my comparison and data analysis; I think that is the best way to gauge values – similar home sales.  So how should a buyer or seller value a property today?

Pricing is an art, not really a science.  Homes have a multitude of variables that dramatically impact value, but at a high level, it is very clear which sellers are getting multiple offers and selling quickly for more than their asking price – it is those sellers that are listing their homes as a discount to the peak prices from 2022.  If a seller tries to list at the market peak (a.k.a. May 2022) they are usually disappointed and frustrated that their home is not selling and they have to deal with price reductions and subsequent buyer hesitation feeling there is something wrong with the home, for no reason other than time on market and price reductions.  Alternatively, sellers that consider the market adjustment and price accordingly can be pleasantly surprised that buyer demand has returned and some will still compete for homes.  But of course, it isn’t that simple to get the best price.

Prepare Your Home if you Want Top Price.

There is no short cut.  If you don’t prepare your home properly for sale, you will not get top price.  As a seller you want to have the largest bucket of buyers possible, but if your home is currently only workable for a small segment of the buyer pool, you have eliminated a huge opportunity for a higher sales price.  For example, you may have an older property on a great lot in a desirable location and you think for sure the buyer will just tear it down.  But what about all the buyers than may move into an old home, or buy and rent it while they plan the rebuild, or do some minor remodeling and then move in? Maximizing the buyer pool is the key. If your home doesn’t present well to the majority of buyers, you eliminate your opportunity for higher market price. 

I just saw this happen on a wonderful property in Menlo Park.  It was an amazing opportunity on a large lot that can possibly be subdivided, so the seller chose to do no improvements or cleanup to the property.  Because of that, they only attracted a small segment of the market and did not get top market price in the current market.  But, when I work with buyers, I LOVE to find these sellers – it gives my buyers a chance to get a deal in any market condition and get the easy equity.

More Inventory Around the Corner

Without fail, year in, year out, as spring progresses more inventory comes to the market.  Sellers tend to start planning their next move once the weather improves.  By late spring, buyers tend to take the foot off the throttle and evaluate how aggressive to pursue properties.  I am very cautious about this stage of the cycle this year because I expect more uncertainty around this time – layoffs, interest rate increases, and overall fear, which will be influenced by the media.  Let’s face it, fear sells and the media needs to sell news.  But the media can be misguided. 

In December I mentioned my concern about the media forecasting a huge market drop in 2023 up to 25%, as if we hadn’t already had a big correction.  Moreover, just this past month Goldman Sachs came out and highlighted 4 cities they expect to see a 2008-like real estate crash, but did not highlight the drop that has already occurred.  To be fair, journalists are not in the real estate trenches daily so by nature the data is old when they get it, but I think we have already seen a sizeable correction.  Are we done correcting?  There are so many variables that can impact values, but the quality locations and properties will always have a demand.  By the end of spring we see less FOMO with buyers and the higher inventory flow at that time will give me a clearer gauge of how buyers will feel in the summer.  Whether selling or buying, be aware of spring inventory flow and how this plays a part into your decision making.

Interest Rates – What to Expect

I expect to see continued pressure on rates as inflation and uncertainty continue.  I still think inflation has previously peaked, but will not go away tomorrow, or this year, for that matter.  Higher inflation is here for a while, so we must adjust accordingly.  The good news – mortgage rates are not as high as many think --- I often ask buyers that come to my open houses where they think the mortgage rate is today, and recently people say they think it’s between 6-7%, when in reality they are 4.75-5.5%, as of end of February.  Part of the confusion is conforming versus jumbo rates.  Loans under one million fall into conforming guidelines and those rates are higher, but since most loans I see are excess to one million, there is opportunity for better rates – plus you have to know the right lenders who are offering the best programs at the time.  Current CD’s (certificate of deposits) are 4.5% or greater and you can get a 30-year mortgage at 5.1%, I’d still say that’s a fantastic rate for 30 years of debt.  We are accustomed to insanely low rates and it takes time to get comfortable with the new norm, but we are getting there.  I don’t expect interest rates to be stable for a while, so it is crucial to watch carefully and know where to find the best mortgage programs. That is something I can help with.

What’s Going to Happen?

Companies are going back to work!  I have been predicting this transition back to the office for some time now, but it is really picking up steam with most companies.  This is an opportunity for companies to tighten their belts, get back to the basics and get collaboration flowing with in-person meetings and brainstorming sessions.  I have yet to hear a good argument for collaboration via Zoom instead of in-person.  And the back-to-the-office mandate means many people coming back to the area for housing, whether to purchase or rent.  I do expect companies to cut deeper into their organizations as you are hearing from Meta, which I hear will get into IC jobs, not just support or middle-management roles.  I expect other companies to follow suit as we make our path towards the other side of this market transition.  It’s going to be a rough year, but there is so much opportunity at the other end in new technology and possibly even new markets of business.  Silicon Valley draws talent from around the world and I believe we will continue to experience this as the best and brightest come for the innovation and technology, and stay for the culture and energy.

My Best Advice?

I think we will have a seasonally-expected strong start to spring, but there are so many open variables that could really derail the rebound we are starting to see.  I do not expect to see prices like early-2022, but I am seeing better prices than Q4 of 2022.

 Move forward intentionally, but cautiously.  There are reasonable reasons to buy or sell in any market, let’s just make sure it is the best decision for your family before making the leap.


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