Unexpected Turns of the Spring Season: Delayed Buyers and Motivated Seekers

The spring season started with high buyer demand and low inventory, following the usual pattern. However, the weather was unexpected, with months of heavy rain, strong winds, and gloomy conditions.

This created an unprecedented delay in the spring market and surprised everyone. Despite the setback, motivated homebuyers emerged, actively searching for properties. But, for a strong market we need the browsers too. The browsers play a crucial role in shaping the demand in the spring market. Browsers are in the initial stage of their home buying journey and are exploring different neighborhoods, assessing their budget, and considering various factors – all important things they need to do to become active buyers. This season was unlike any other I've experienced, as the browsers were delayed. We are now witnessing a shift in timing as it may take a few more months for them to become serious buyers and impact the current trends, including the traditional summer slowdown.

Spring Market Insights: Trends, Negotiations, and Reasonable Prices

The spring is busy, prices are up compared to the previous quarter and we are having many cases of multiple offers. Prices rebounded off the bottom and are currently noticeably higher than the end of 2022 but are not back to peak prices (with some exceptions).

Pricing homes in line with the current market is attracting multiple offers. However, it's interesting to note that having multiple offers doesn't automatically lead to buyers competing at irrational prices compared to recent similar property sales. I intentionally avoided referencing prices based on Zestimates because they aren't the ultimate gauge of value for buyers. In fact, buyers who rely on Zestimates for their value judgment often find that their offers are consistently not accepted.

Interestingly, we are back to many buyers coming into open houses asking about “pre-emptive offers” and “seller expectations,” but what they do with the information is very different. When the market is hot and a buyer makes a pre-emptive offer, you can bet the price will be well over current market comparables as they are trying to swoop up a property in an up-trending market. Today, you are seeing pre-emptive offers near the asking price and sellers who are not comfortable with the current market conditions are more inclined to take it – a bird in the hand is worth two in the bush.

Buyers often ask about seller expectations, not just to offer more money, but to see if the seller is reasonable. They want to know if the sales process will be worth it or if the seller is inflexible with their pricing, making the whole thing pointless. I'm currently witnessing a trend where many Buyer's Agents seem unwilling to put in the extra effort to prepare strong offers that stand out. Instead, they often take the approach of saying, "If we can get this home, then I'll do the additional paperwork."

Such a difference in the market, but I love it because this is when negotiating is sensible and in the end both buyer and seller can feel good about terms. One of my main takeaways this season is that I didn't encounter many sale price surprises. In a typical spring market, we expect to see numerous WOW! moments with prices surpassing previous sales. However, this year, I found that most sales were reasonably aligned after considering the market's upswing since the end of 2022.

Navigating Differing Opinions: Balancing Perceptions with Market Realities

There is a lot to unpack with the current market – Prices are off from peak, but better than late 2022. We have seen solid sales this year and I expect to see this carry out to year end. I think we have already experienced the largest price drops and are now bouncing off the bottom.

When I talk to both buyers and sellers, I hear two divergent perspectives: The market is going to tank or the market is going to jump up next year.

Nonetheless, there are several factual things impacting our market today:

  1. Layoffs: We all have friends that have recently lost their jobs, but fortunately most received severance packages that are extending their runway through the year, so they are not feeling a financial pinch yet
  2. Fed Rate Increases: The Fed hasn’t pumped the breaks yet and most are expecting a few additional rate increases
  3. Inflation: it is down almost 50% from the peak of 2022, but still above the target rate of about 2%
inflation table
Inflation is down almost 50% from the peak of 2022.

Depending on which side of the aisle you are on (selling or buying), the motivation to take the next step is different. That being said, I tell all my clients the same thing – I think we are bouncing off the bottom and have already experienced our largest price drops, but it is unclear when we will see sizeable gains from current market values.

In the short term it is difficult for me to be bullish, knowing there are so many uncontrollable variables (i.e. Russian/Ukraine War, Fed interest rates, layoffs, recession fears, etc.) but I feel very confident in the mid-term (3-5 years out). I am over-the-moon excited with generative AI technology and how I see it being the driver of Silicon Valley’s next economic wave for many years to come, so if you have a long horizon, I will bet on our valley every day.

Selling? Proper Preparation is Key in This Market

Buyers are looking for reasons to say NO to a home, so getting them to YES with a properly prepared home is extremely important. Think of this market as value-driven. Buyers are actively searching for a value proposition that influences their purchasing decisions. This can include finding a home priced fairly compared to a year ago or identifying a property in a condition that perfectly matches their specific requirements.

In a hot market you will see buyers find reasons to say YES. The house has freeway noise? No problem, I’ll keep the windows closed. Smoke smell? I’ll plug in air fresheners. Bathroom floor falling in? I’ll just use the 2nd bathroom. In today’s market buyers are more likely to say NO when the house has features that are fixable, but the seller didn’t fix them ahead of time.

My Summer Outlook: Anticipating Travel, Increased Inventory, and Balanced Market Conditions

As summer approaches, it's important to consider that many buyers will be traveling, making it uncertain whether the perfect buyer for your home will be in town at any given time. This aligns with the typical summer market trends in our area. However, there is a positive shift in inventory as inspectors, staging companies, and escrow companies are experiencing higher volumes compared to previous months. This supports the notion of a delayed spring market, suggesting that this summer may fare better than previous ones. Although I still have reservations about selling a house in July due to its popularity as a travel month.

interest rates matrix
Interest rates are expected to remain stable.

Regarding interest rates, they are expected to remain relatively stable as the financial market continues to address recent challenges. Both buyers and sellers will exercise caution in their decision-making process, recognizing that it's a market with fewer black-and-white choices. Nevertheless, this balanced market presents opportunities for both parties involved. Sellers can capitalize on gains and explore alternative investments beyond being solely house-rich, while buyers can take advantage of a more rational market without the pressures of overly exuberant competition.

Clarity is the missing component. When clarity returns, so will our hot market. This is true in real estate and in equities. We have perpetually low inventory and there are always more buyers than homes available for sale, so watch out when clear line of site returns – buyers will be on a mission! I think it is reasonable to be cautious when the horizon is fuzzy, but you are surrounded by people in the same position. When clarity returns you will see eagerness return in so many forms.



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