Real Estate News
Where Are We in the Real Estate Market Cycle?
A few days ago I was talking with a client of mine who was very distressed about this, “crazy new real estate market,” and how, “everything’s different today than it used to be.” It got me thinking about how important it is that I do everything I can to set the record straight among my clients so you better recognize where we are in the current real estate market cycle. For folks who are interested in real estate and might be considering buying or selling a property right now, understanding the big picture is critical. Critical! So here’s where the market stands:
The majority of folks I speak with think this seller’s market and tight inventory is something new and something that’s going to come to a head and suddenly erupt overnight. Neither assumption is true. Here’s the truth:
We are eleven years past the bottom of our last real estate cycle. Don’t be fooled into thinking this is something new. It’s not. It is a logical continuation of a market that is reacting strongly to the overselling we saw between 2007–2009, and finally bottomed out in 2009. It’s doing exactly what real estate market cycles do; go up and down over long periods of time.
But remember, over the past 40 years residential real estate appreciation has averaged 6 percent per year and there is no reason to think that is going to change over the next 40 years.
We tend to erroneously think of real estate market cycles in short-terms, spiking and crashing over short periods of time like stocks and generally messing everything up. A quick look at the last market cycle shows clearly this is not how real estate works. Real estate cycles tend to move in much broader periods, typically 10 year cycles, over the past 40 years. This is why predicting short-term market movements can be very difficult, whereas assuming the market will move in 10 year cycles is a pretty good guess.
Let’s talk about where we are in today’s cycle. As I mentioned, we are currently eleven years past the bottom. The past eleven years have been a wild seller’s market with plummeting inventory, rising prices, nervous buyers often involved in multiple offers, and happy sellers more often than not getting the price they wanted (or even more). Great times for sellers!
But the client I referred to earlier was a buyer…and she was nervous. Understandably so; she reads lots of news articles, watches the grim reports on TV, and figures the real estate market is teetering on the brink of disaster and is therefore afraid to buy. She wants to buy because her rent is skyrocketing, up 2+ percent the past year alone, but she’s confusing the shorter-term media screeds about this tremendous stock market crash (down 25 -30%) with the long-term patterns of real estate, thinking that the minute she buys a home the real estate market is going to bottom out. From what I’m seeing, interest rates are still incredibly low and demand is high, but who knows how long that will last. I’ll tell you what I told them; if you can afford to buy a home right now, lock in these super-low interest rates in while they’re still around! 2021 may be a different story…
But let me be clear: no one can predict the market with 100% accuracy. I can’t, the Federal Reserve can’t, the banks with all the money can’t (obviously!), no one can. But recognizing how low our current inventory still is, I can say with confidence I do not see any major weakness in the local RE market over the next couple of years. I can’t tell you what the Dow Jones will finish at next Monday. I can’t tell you if the Rockies will win their fifth game of the season (or if they’ll even play due to the recent public health crisis). I can’t tell you what the weather will be on April 15th. But I can say with confidence that real estate tends to move over predictable long-term trends, and with low inventory and super-low interest rates, real estate is still a safer “slow turtle” investment.
How to write a strong offer
In a market as tight as we have today buyers need to write strong offers if they want to get them accepted. You need to work with an agent who understands how to write a powerful offer that will be seriously considered. Here are some of the ways to do this:
- Get prequalified by a competent loan officer before writing any offers, and invite the seller to contact the mortgage person who can demonstrate what a strong buyer you are.
- If the seller needs time to move, write an offer with a 30-60 day rent-back period. This permits the seller to stay in the home after closing to give them time to find a replacement home.
- Provide a large earnest money deposit to show the seller you are serious. A good agent will never lose the earnest money you put up so you’ll still be safe, but the seller will be more likely to accept your offer.
- Use a cashier’s check for the earnest money. It makes no practical difference but subtly indicates to the seller you really are serious enough to take the time to get a cashier’s check.
- Write an Escalation Clause into your contract that says your offer will beat any other verifiable offer by, say $2,000.
And these are just a few of the strategies we use to get our offers accepted. Feel free to call me to discuss how we can get YOUR offer accepted!
The Spring selling season is here!
Springtime is upon us, ringing in the peak period to sell a home. If you’re considering moving now’s the time to begin the process. You’ll want an accurate Comparative Market Analysis on your home to interpret its value and identify small projects that can increase its marketability. This is also an unprecedented time for trade up buyers, who are cashing in on the low interest rates. Call me and I’d be happy to get you started!
Good news on the mortgage front
A lot of buyers are nervous about getting a prequalification letter from a lender because they hear lenders aren’t lending; that simply isn’t true. Every indication is that lenders want to put their cash to use. With recent super-low interest rates, lenders are also experiencing a huge demand for refinances and trade ups. Feel free to call me if you want me to recommend a couple of great loan officers who would be happy to meet with you and review your ability to purchase a home!