How to Prepare for the Looming Real Estate Market Shift in Eugene & Springfield
A lot of our friends, family, clients, and partners ask us our thoughts about the market. While we love having the one-to-one conversation, we believe it is time to start putting our thoughts on paper to share. This will evolve over time and we always appreciate feedback, ideas, comments, and questions.
Based on our experience and analysis, we believe the market is hitting a peak. While there are many factors that go into this analysis, we will share a few key points in this article. Inventory is increasing, existing home sales are declining, and the broader markets appear fragile.
What is happening in the housing market?
Existing home sales are beginning to slow down. At the national level, existing home sales are down 4.4% when comparing April 2019 to April 2018. They decreased by 0.4% when comparing April 2019 to March 2019. March was also a down month. That is two consecutive months of declining sales during a spring selling season, which is the peak selling season. Those declines happened while housing inventory increased by 1.7% from March to April. That means there are more houses available and fewer sales happening. From a geographical standpoint, the decline is broad. Existing home sales in the Northeast decreased by 4.5% from a year ago. Existing home sales in the Midwest decreased by 7.9% from a year ago. Existing home sales in the South decreased by 1.7% while existing home sales in the West decreased by 5.9% from a year ago.
While sales declined, the prices of those sales increased by 3.6% in April. This marks the 86th consecutive month of price gains. Those gains are starting to slow down though which adds to the speculation that the market is starting to peak and potentially turning the other direction.
You may think these two metrics are conflicting, but I disagree. Prices will continue to climb as the market initially changes directions. People don’t want to “miss out”. When the market is in a euphoric state like that, a decline is typically on the way. I believe we are at that point. Prices will start to follow by declining as the inventory grows and sales decline. Those two items will drag prices lower as homeowners have to be more competitive to compete for buyers
Thanks for the high-level view but what about Eugene?
Great question. Now that we see what is happening with the broader real estate market, let’s take a deeper look at Eugene. We could dive into many data points, but we are only going to highlight two charts to spare you some of the boring details for now.
The first chart which is titled, Median List Price, is the one I like the most. You can see that list prices increase in the spring/summer and decrease in the fall/winter. What we want to point out is that over 2016, 2017, and 2018 is that the market kept reaching higher listing prices. However, the current spring selling season appears to have already peaked in listing prices if the current trend holds. The straight black line marks the 2019 high and it appears that the listing prices will not reach or exceed the prices of 2018. This is the data we have been waiting for since December and will closely monitor over the next few months.
Could this just be a minor slowdown?
The answer is yes, of course. We do not have the ability to time the markets or predict the future. However, the next chart shows properties currently listed for sale have dropped their prices at an increasing rate. A price drop is when a homeowner starts with a list price of say $500,000 and then drops the price to $480,000. The more homeowners who did this, the higher this chart will go. This chart tells us a lot when we combine it with the median listing prices. You can see that the peaks are during the winters and the bottoms are in the spring/summer. The black line is pointing out that this number bottomed out in 2018 when it was pretty much in line with 2017. However, 2019 shows that the number of homeowners dropping their prices increased from 27% to 34% when compared to last year. It also appears to have bottomed out for the spring season but data over the next month will confirm whether or not that is true.
Thanks for the data, will you recap that?
Definitely. In short, sellers are starting to list their houses for lower prices while the houses currently for sale are dropping their prices at a higher rate than before. While we didn’t include the information into this analysis, houses are taking longer to sell and the number of houses on the market is increasing. This all points
So what does this mean to be a seller?
You are considering selling your home so what does this mean for you? An increasing supply and decreasing sales indicate to me that we could be at a point where the market is shifting directions. If the trend noted in the graph above continues, then we are seeing a structural shift. If that is the case, then sellers need to be careful about pricing their home. Do not just assume you can put whatever price you think works and attract multiple offers. You will cost yourself money. You do not want to be chasing a declining market. Price your house competitively from the beginning. Don’t reach for a price tag that may have worked in a rising market. You may have to price it at $340,000 if the market indicates your house is worth $350,000 to be competitive. If you trust your agent, then listen to their advice. If you don’t, find yourself a new agent.
But what does this mean to be a buyer?
You are in the market or considering a purchase so what does this mean? Will declining prices help with affordability issues? The short answer is yes and no. Price declines will certainly help. What buyers need are for interest rates to remain low while prices decline. If both those things happen, then houses become more affordable. You should be paying attention to what mortgage rates do. If the broader economy starts to slow down, then interest rates should stay at their current levels which will help buyers.
How do mortgage rates play into this market?
Housing affordability will depend on the mortgage interest rates and the broader economy. If the economy and stock market begin to falter, investors will move to safer investments such as bonds. As the demand for bonds grows, the interest rates will fall. This will help make houses more affordable. Conversely, rates will continue to increase if the Federal Reserve increases rates and if the stock market continues to climb.
In the end, nobody can predict the future, but we will closely watch the market over the next few months to see what happens. If the trend continues, it will confirm our assumption that the market has peaked. Let us be very clear that this does not mean a crash is coming. However, prices could decline from recent highs which is probably necessary to ensure we don’t have a bubble and eventual crash. In reality, it simply indicates that sellers will have to pull back their expectations about pricing their homes. Homes will likely stay on the market longer and buyers will have more options and prices will move in their favor somewhat.