For me, the day after Labor Day -- even more than Jan. 1 -- represents new beginnings.
In real estate, it’s an excellent time to reflect on the year and consider where the next 12 months may go. I find this particularly so this year. We all know that since just after the global shutdown for the pandemic, the real estate market has been on fire. Interest rates were lower than anyone has seen in history, buyer demand was through the roof, and a lack of inventory made for a wild ride these past 2 1/2 years.
However, since late spring, we have definitely noticed a shift in the market. We’ve seen countless headlines wondering whether the real estate market is “crashing.” This has been accompanied by countless predictions that housing prices will fall and listings won’t sell.
My take? Nope. Not today, and not likely in the near future, either.
Why no crash? What’s holding up the market?
Two of the three things I have written about in previous articles here have not changed: low inventory coupled with high buyer demand. The only thing that has changed most recently, of course, is interest rates. And while that has been significant (interest rates are more than 2 percentage points higher than just a few months ago), buyers still need and want homes.
So, it may surprise some, but we are still very much in a sellers’ market here in Northern Virginia. Yes, still! But there is good news for buyers. The absolute frenzy of the past couple of years appears to be behind us. We are simply back to the “normal” high buyer demand levels of 2018 and 2019.
The prices of homes in our area have become significantly higher in the past two years, and I anticipate that will continue to be true in the future. We may not see such increases in value, but I predict the prices will stay where they are, because inventory is still so low. We are still facing “less than a 1.5-month supply” for detached homes. For reference, a balanced market is a three- to six-month supply, and a buyer’s market is more than a six-month supply.
So, while we may not see aggressive bidding like we did in the spring, sellers will list high and get their asking prices, or close to them. Recently, I listed a home that I was confident was listed fairly, but I did worry if buyers would engage at the list price. Did they ever -- we had three offers. After quick negotiations, we got our asking price. My colleagues and I are seeing quite a bit of this activity. We are also seeing price reductions, but the reduced price would still be considered high compared to two years ago.
One consequence of higher pricing is fewer qualified buyers, so buyers are able to include contingencies. This was unheard of for hot homes earlier this year in the spring market. Those contingencies are usually for home inspection, financing and appraisals.
So, what does that mean for sellers? It’s back to basics! Sellers need to woo the buyer with a great product. Many agents and sellers never stopped this practice during the past couple of years but maybe relaxed a little bit. Not any more.
Sellers do need to go the extra mile to get the extra dollar. This means painting, weeding, staging, updating and marketing. And when the offer does come in, negotiating. If the offer doesn’t come in at asking price, take a pause and review it carefully. We are seeing price reductions, and if you haven’t done that yet, a strategic reduction may put you in a better negotiating position.
One of the best strategies I have heard to help buyers manage higher prices and higher interest rates is for the seller to offer the buyer a “seller credit” instead of lowering the sales price. The buyers can use the credit to reduce their interest rate. The effect can be huge. Here’s an example of how this works:
The seller lists a home at $937,500, and receives an offer with 20% down, so the buyer’s mortgage would be $750,000. The buyer wants you to lower your price by $15,000 to $922,500. Instead of lowering the price, you offer a seller credit of $15,000 and suggest they use it to buy-down their interest rate. This means they pay some money up front to reduce the rate and lower their monthly payment.
For example, if their rate was 5.875%, $15,000 (2% of the loan amount) would lower their rate by 2 points, and the new rate would be 5.125%. That would translate to a monthly savings mortgage payment savings of $353. If they simply reduce the price by $15,000 their monthly savings will only be $62.
That is a win-win for the buyer and the seller! Try this next time -- if you’re making an offer, consider paying the list price and asking for a seller credit.
Don’t be intimidated by the market conditions. Use this time to reflect on what you want, and what resources you have at your disposal to make it happen. And, as always, you can send me your questions!
Rebecca McCullough is a licensed real estate agent in Virginia with McEnearney Associates, Inc. in Old Town Alexandria, VA. If you would like more information on selling or buying in today’s complex market, contact Rebecca at 571-384-0941 or visit her website RebeccaMcCullough.com.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: InsideNoVa@mcenearney.com or call 703.549.9292.
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