Have We Reached a Market Inflection Point?

The real estate market has been on fire. During the first half of 2021, Bay Area sellers have realized new price-per-square-foot records. Yet, I believe dynamics will soon shift to more of a buyer’s market, or at least come back into balance. The basics of supply and demand support my hypothesis.

 

-HOUSING SUPPLY WILL RISE: Typically, there is a surge of inventory after the Superbowl. Sellers are enthusiastic that the weather gets a little nicer. They think more buyers will be in the market, not distracted by football. And, these sellers want to get a head start before more homes come to market. Inventory tends to build in March. For many soon-to-be empty nesters, they consider that they might market the home for a week, a typical buyer will need 30 days to complete the mortgage loan process, and mortgage lenders allow for a maximum 59-day rent-back period. If school is out in early June and you want a buffer to move, then you back into an on-market date of early March. Many sellers want to close escrow on the sale of their home prior to moving because they use their sales proceeds to buy their next homes.

 

The COVID pandemic changed so many things, including the timing of this surge. Fewer people were willing to show their homes while being owner-occupied. Some students remained in home schooling, and parents did not want to disturb school schedules with showings. The Bay Area market had less inventory this spring, causing pricing to rise, and planting seeds of optimism for some sellers.

 

In the second half of 2021, I believe pent-up supply will come to the market. School is out, so many families have moved and will soon be selling. My stager is overwhelmed helping to prep homes to hit the market! With recent strength in the real estate market, there might be added inventory from sellers trying to maximize their returns.

 

More inventory leads to lower pricing.

 

-BUYER DEMAND WILL FALL: For the first time in over a year, many families are able to travel with less worry. Many would-be buyers will be visiting loved ones or exploring the world this summer instead of looking at houses.

 

Interest rates are starting to rise. While still at historically low levels, interest rates rising can have a chilling effect on home prices, particularly at entry level price points. Many buyers determine their housing budgets based on how much they can borrow.

 

Less demand leads to lower pricing.

 

A shift in the market may take a bit of time. Listing agents will likely see a changing spread in offers. Some offers may be grouped together, and then there will be one or two high-priced outliers from buyers. Those buyers may just want a house after trying for so long. Or, perhaps they will not yet realize the market is in flux.

 

If you have been a buyer waiting on the sidelines, now is a great time to start exploring, and we can help. If you are a seller, we will share with you our unique strategies and give you a realistic range of what you can expect from this changing market. At Canopy Realty, we are here to protect your interests.