The most commonly asked question when someone starts a conversation about real estate: “What is going on in today’s market?”
The interesting aspect of real estate is that it is always changing, and no two buyers, sellers or transactions are alike. However, our local market has been a bit like an old record with a skip in it: low inventory, strong buyer demand, low interest rates, price escalation. We had this skip, with a few minor exceptions since February 2012, when the post-Great Recession rebound began in the area.
It feels like we might be getting ready to leave that skip behind, as the winds of change may be coming.
Q: What is driving the possibility of change?
A: A number of factors have contributed:
• Interest rates have been rising and will probably continue to do so. This does not impact the higher-end markets as much, but it does have a slowing effect. As interest rates rise, buyers can not borrow as much, so they are able to offer less.
• While the stock market has been growing, it also has been rather volatile. Stock portfolios do have a fairly dramatic impact on the amount a buyer is able or willing to spend on buying a house. Volatility means uncertainty, which brings retraction. Some stocks (like Facebook) are down substantially, reducing the amount an employee might be willing to invest.
• Buyer demand is down a bit. In our area, spring is the main buying season, and many buyers have already found their house and are no longer competing for the few listings available.
• Buyer fatigue. Many buyers have lost out in multiple-offer situations and are tired of losing. They may decide to step out of the market and rent for another year or so.
• Affordability. Home prices have gone up so much that there are fewer and fewer people who can actually afford to buy.
Q: Do you see prices headed down?
A: Probably not. What I do expect is there will be fewer multiple-offer situations and prices will probably end up closer to the asking price. My read is that home prices will stabilize and not head up much more.
Q: What are sellers expecting these days?
A: There is an old expression: “Sellers think their houses are built with nails of gold.” When a neighbor’s house down the street sells, a seller will say, “Oh, my house is so much better than that house, so it’s worth much more.” The other factor is that sellers look at what has sold looking backward. Buyers look at where the market is heading, not necessarily where it has been.
Q: What should buyers do?
A: Be patient and do not agonize that a particular house does not have every “must-have” feature. A decent house in a great neighborhood is usually far better than a decent neighborhood. You can always change your house later – it’s hard to change a neighborhood. Also, look for houses that did not sell the first or second week. They might have ugly carpet or be a bit overpriced and your agent might be able to have you swoop in and actually buy below the list price.
Final thought: It feels like we are headed toward a more balanced market that favors neither buyers nor sellers. That will benefit everyone.
Owen Halliday, a longtime Los Altos resident, is a realtor who manages the Sereno office in Los Altos. Call him at (650) 492-0062 or email Owen@Sereno.com.