Shifting to a buyers’ market
For the first time in several years, we are starting to hear the words “buyer’s market” being used by the media. Diana Olick of CNBC stated just this week that the housing market “has shifted from seller’s market to buyer’s market”. Based on the latest Zillow research price cuts are becoming more common:
- About 14 percent of all listings across the U.S. had a price cut in June 2018, up from a recent low of 11.7 percent near the end of 2016.
- In San Diego, 20 percent of listings had a price cut in June, up from 12 percent a year ago.
- Home value growth is slowing in almost half of the 35 largest U.S. metros, with Sacramento and Seattle reporting the greatest slowdown since the beginning of the year.
- U.S. home values rose 8.3 percent over the past year, and Zillow expects home value growth to slow to a 6.6 percent appreciation rate by this time next year.
In Seattle, 12 percent of all listings had a price cut in June, the greatest share since October 2014. Portland, Sacramento, and Riverside were also among the markets that experienced an increase in the share of listings with a price cut in June compared to a year ago. This week the Sacramento Association of Realtors released their monthly numbers and it appears we may be reaching the tipping point. For the first time in seven years, the median price of homes in Sacramento dropped $5,000.
Market shift started a year ago
According to a study released by the University of Michigan, the buyer’s market began in May of 2017. As observed by Tyler Dyson of Zerohedge.com, “The beginning of May (2017) officially marked the advent of a buyers’ market, defined simply as sellers outnumbering buyers by a wide enough margin to trigger falling prices. Yes, it’s the moment buyers have been waiting for“
Sellers have been overly aggressive
Ryan Lundquist a Sacramento appraiser notes in his blog, that sellers are in a state of disconnect from their buyers. Sellers are being overly aggressive in their expectations. However, buyers are taking their time waiting for the right house at the right price. His recommendation to sellers is “to be in tune with reasonable prices”. With a return of a buyer’s market, sellers need to adjust their expectations and be ready to make concessions.
Increasing seller concessions
With rising interest rates, many buyers have been priced out of the market. As a result, we are seeing a flattening of prices and or price reductions. What Zillow and most other research sources don’t show is the seller concessions that are being given to buyers. These are things buyers negotiate for from the seller that are only known to the agents and their clients. In the past, it has not been uncommon to see $2,000-$3,000 seller concession on lower entry level homes. What we’re starting to see is seller concessions on middle tier homes. Some of the recent seller concessions we have seen have included $10,000 in cash back and $5,000 annual memberships to the local golf club. We haven’t seen these kinds of concessions in several years in the middle price ranges of homes.
What does it all mean?
What does all of this mean? For buyers who have been prices out of homes for the past several years, it’s time to keep being patient and wait for the right opportunity. For sellers it’s time to be realistic about values and price their homes accordingly.