Surging Inventory Starting To Strike Fear In Home Sellers | Nick Gerli
Sep 24, 2024
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Nick Gerli, a housing market analyst and founder of reventure Consulting, joins to unpack the current U.S. housing landscape. He discusses the surprising surge in home prices amidst record-low transaction volumes and the impending decrease in mortgage rates due to Federal Reserve actions. Nick highlights the dramatic rise in inventory levels, especially in Florida and Texas, and the changing dynamics as institutional investors retreat. He also examines how these factors could redefine what a 'normal' market might look like heading into 2025.
Sellers must adapt to changing market conditions by potentially lowering their pricing expectations to facilitate sales amidst declining demand.
Regional disparities in the housing market reveal that areas like the Sunbelt face increasing inventory and price drops compared to ongoing shortages in the Midwest and Northeast.
Despite recent interest rate cuts, buyer demand remains low due to affordability challenges, resulting in 30-year lows for mortgage applications and pending sales.
Deep dives
Shift in Seller Psychology
The current economic landscape, particularly with Federal Reserve rate cuts, may lead sellers to reassess their pricing strategies. Sellers who once believed they should command higher prices may soon realize the necessity of lowering their expectations to make sales. This psychological shift could trigger a sense of urgency, compelling sellers to act before potential further declines in value. Understanding this shift in mentality will be crucial as it may influence market dynamics significantly.
Regional Housing Market Divergence
The U.S. housing market is currently characterized by distinct regional trends with notable variations in inventory and prices. In areas such as the Sunbelt and Mountain West, there is a pronounced downturn, marked by increased inventory and declining prices, contrasting sharply with the Midwest and Northeast, which continue to experience shortages and price increases. For instance, a builder in New Jersey recently sold a home for $100,000 over the asking price, while similar properties in Florida saw price cuts close to $100,000. This divergence emphasizes the need for localized analysis to understand market behavior effectively.
Impact of Mortgage Rates on Buyer Demand
Despite the recent cuts in interest rates by the Federal Reserve, mortgage rates have remained relatively stable, leading to a concerning trend in buyer demand. Current levels of mortgage applications and pending home sales are at a 30-year low, suggesting that prospective buyers are not responding positively to the rate cuts. Many buyers appear to be sidelined, struggling with affordability amidst historic high mortgage payments, which have only marginally decreased. Until payments drop significantly, estimated around $2,000 monthly, home buyers are unlikely to return to the market.
Investor Sell-Off Dynamics
There is a noteworthy trend of both institutional and individual real estate investors selling properties, contributing to increased market inventory. Many investors are reportedly offloading properties to mitigate losses as property carrying costs such as taxes and insurance surge. For instance, Blackstone recently sold a property at an $80,000 loss, highlighting the growing pressure within the investor class. This sell-off could lead to additional downward pressure on prices as sellers seek to liquidate assets in response to rising costs.
Future Market Outlook and Buyer Strategy
Looking ahead, the market dynamics suggest potential opportunities for buyers willing to adopt a cautious approach. By understanding individual market conditions and being prepared to make lowball offers, buyers could find properties at significantly reduced prices aligned with their budgets. Moreover, as more sellers begin to respond to changing market conditions, interested buyers may unlock favorable purchasing scenarios. However, caution is advised, as even successful purchases today may see continued price declines in the near future, necessitating a measured strategy.
The US housing market remains in uncharted territory.
Median -- not average -- existing home prices hit another all-time high last month, yet transaction volumes are at lows not seen for decades.
And potentially changing the game from here is that mortgage rates are likely headed downwards now that the Federal Reserve is cutting interest rates.
We're also seeing inventory starting to surge in an increasing number of regions.
What does this all mean for home prices as we head into 2025?
Will we ever return to a "normal" market again? And what would "normal" look like from here?
To find out, we welcome housing analyst Nick Gerli, founder of reventure Consulting and creator of the new reventure app back to the program.
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#housingmarket #homeprices #mortgagerates
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