‘Is the Real Estate Market Going to Crash?’
You’re likely getting this question from clients a lot. Use these tips to explain changing markets and put your customers (and agents) at ease.
November 20, 2018
Housing crashes, typically caused by a perfect storm of problems built up over time, are often unpredictable. What we know right now is that leading indicators show a strong economy and don’t support theories that the real estate market is on the precipice of a downturn. So stressing over the possibility of a crash could cause you to miss out on opportunities arising in your changing market.
Where Are We?
The market has clearly started correcting over the past few months. Interest rates have risen, reducing affordability and dampening buyer demand. However, inventory is pushing above the anemic levels that fueled price growth, and now we have a more balanced market. This is not 2008, when home prices nationwide fell by 15 percent to 20 percent, even 35 percent in some markets. Homes priced fairly or even a bit below market value sell quickly.
Historically, sellers adjust slowly to changing markets and price their homes higher with room for negotiation. Many price reductions do not indicate a market adjustment but rather overzealous sellers or inexperienced agents coming back down to true market value. So although inventory has increased, there is still probably a lack of quality and fairly priced homes.
Where Are We Heading?
I wish I had a crystal ball. But since I don’t, let’s stick to what we know and avoid speculation. At this time of year, inventory naturally declines through Dec. 31 and picks up again in spring. Since we are ending 2018 with the highest inventory in years, it’s likely that spring will see more homes on the market than in the recent past. Yes, coupled with rising interest rates, this may cause more pricing pressure. Don’t forget, though, that the economy is stronger now than it was before the Great Recession. We are seeing now that eager buyers and investors are jumping on the real estate opportunities they find.
What Should You Do?
Encourage your clients to focus on a long-term strategy, and help them make decisions they can afford. Temporary market fluctuations shouldn’t matter. If you’re working with a buyer, it’s your job to advise them not to overpay. Sellers should consider listing before the peak levels of inventory hit the market next spring. Remind sellers that pricing is crucial so they should not go too high with their asks.
Lastly, be ready for opportunity. Most people miss the gifts of changing markets. Make a plan and execute when you see the opportunity. If you help clients buy value during the right time period and have a long-term strategy, you’ll almost never lose.