Better Homes and Gardens Real Estate LLC (BHGRE) is thinking spring—spring selling season that is. A recent roundtable discussion with several BHGRE brokers revealed that historic seasonality patterns have been affected by today’s market conditions. Most notably, record low inventory levels could provide an impact on this year’s spring selling season, the company reported.
“Real estate professionals are highly adaptable and the last two years of the COVID-19 pandemic have proven that our industry is resilient in the face of change,” said Sherry Chris, president & CEO, BHGRE. “As we enter the third spring selling season since COVID-19 emerged, the BHGRE brand wanted to explore what our affiliates were experiencing in different parts of the country. The broker panel observed that strict seasonality is seeing signs of change. However, it is important to understand all of the underlying factors contributing to this significant shift in real estate market dynamics. What is clear is that a lack of inventory stemming from stalled new development is setting the industry up for continued disruption. Identifying and overcoming barriers to building new homes will be critical in meeting the incredible demand for housing that now exists in our country. In the short term, buyers and sellers can follow the advice of their agents on how to best position themselves for success.”
Timing trends:
According to the brokers interviewed, the timing of the spring selling season varies. In Northern New England, the spring selling season typically kicks off in March, but with only 30 days of supply, there aren’t enough homes to create a seasonal sales “spike” this year. People also appear to be waiting out January and February to see COVID-19 cases go down to reduce potential exposure. In Portland, Oregon, spring selling season usually starts at the beginning of the year, although it was observed that 2022 activity was stalled by the omicron variant surge. Brokers are seeing some traces of seasonality, but it’s not full-blown. People will move as soon as the opportunity presents itself, which means for sellers, there’s never a bad time to sell anymore, according to BHGRE’s analysis.
“With just one week of inventory, an uptick in seasonal activity is not possible here in Portland,” said Danielle Bade, principal broker and vice president, BHGRE Realty Partners & BHGRE Northwest Living. “Homes sell as soon as they come on the market. People aren’t waiting for a traditional season to enter the market.”
“Despite having low inventory in our market, we may still see a surge across Sonoma and Lake County, California as some real estate professionals push their sellers to bring their homes onto the market to get the most value,” noted Randy Coffman, president, BHGRE Wine Country Group in Northern California.
Pricing Fluctuations:
According to the brokers interviewed for BHGRE’s report, in Northern New England, prices are still considered moderate compared to urban areas. However, they are increasing, which puts pressure on local residents looking to buy in-market. In Lehigh Valley, Pennsylvania, which sits between New York City and Philadelphia, home prices are lower compared to the major cities. In Northern California, prices are flattening out somewhat but are still higher than expected due to low inventory. In Portland, Oregon, prices are not expected to come down this year.
Despite double-digit price increases, the brokers interviewed are confident this is not a real estate bubble. Appreciation rates could moderate a bit, but prices won’t come down. Panelists reported they are staying attuned to consumer tolerance for rising prices, and seller greed, which could cool the market.
“This is an entirely different dynamic from 2008, which was driven by lax lending,” said Chris Masiello, CEO of BHGRE The Masiello Group in Northern New England. “This is a supply and demand issue that is being guided by demographics: millennials and baby boomers are orbiting the market for the same housing stock. These first-time homebuyers and downsizing buyers are vying for the same properties.”
“There is a potential for prices to plateau and then return to a more normal appreciation rate,” said Jack Gross, owner of BHGRE Cassidon Realty in Lehigh Valley. “We might also see buyer frustration cause people to leave the market because they are tired of not getting a home. But consumer confidence in the housing market is high, which makes them open to overpaying.”
“We are starting to see home price increases flatten out somewhat, but it is still higher than expected due to the low inventory,” added Coffman.
Shifts in Buyer Mindsets:
Brokers interviewed are seeing an increasing sense of urgency from consumers to “win” the home, bidding up the price beyond normal appreciation rates. This means they are paying now for what a house could be worth in two years. As a result, the phrasing has changed from “I bought a home” to “I won the bid.” And for those unable to “win,” buyer fatigue has kept people out of the market in recent months, BHGRE reported.
Another shift noticed by the brokers who participated in the roundtable is that people are not interested in homes requiring significant sweat equity. Instead, they are more focused on their careers and don’t want to invest significant time or effort into fixing up an outdated house.
Further, the brokers observed that living with COVID-19 has worn down buyers. Depending on the region, consumers are either tired of the coronavirus and moving forward with plans or still in a holding pattern created by health anxiety.
“Despite home prices increasing about 30% in Central Florida, the market is not slowing down, although the lack of inventory is discouraging for buyers, particularly first-time buyers who are contending with rising rents,” said Dana Hall-Bradley, broker/owner, BHGRE Fine Living in Celebration, Florida.
Seller Mindset:
Participating brokers report that current inventory conditions are giving new meaning to the term “seller’s market.” In some cases, sellers are becoming irrational on pricing, insisting on list prices well above current market values. In other instances, sellers are getting more cautious with pricing too high. However, brokers report that homes are still getting multiple offers over list price when priced right.
According to Masiello, “For most sellers, the biggest deterrent is ‘Where will I go?’”
Brokers shared that people in Oregon are going to Arizona for some sun, often retiring a few years earlier than planned. Urban dwellers in California are moving north, while people in Pennsylvania are heading south to Florida. People in New England are selling their family homes and taking up primary residence in their second or summer home until a suitable primary home becomes available. Others are downsizing to a tiny home or RV.
“We are hearing more from sellers that it’s not always about the highest price—offers with contingencies are less desirable,” said Bade.
Interest Rates:
The brokers interviewed observed that the increase in interest rates from 3.5% to 4% is not a real financial driver. They noted that they do not envision it having a substantial negative impact on the market. It may, however, be an emotional one as people get off the fence and try to beat the market. Interestingly, the participating brokers are noticing a shift in the historical relationship between inflation and interest rates, which is now inverted.
“Buyers may initially see the rates as higher but remember—historically, they are still low, and there is bound to be a little give and take,” said Coffman. “Prices go down a little; rates go up. It evens out.”
Migration:
According to NAR, as more people can work from home, city dwellers are moving to the suburbs. Participating brokers report that those who come from New York City can sell a $2.5M townhome and move into a $600,000 4,000 square foot Colonial in Lehigh Valley. Similarly, people who move to rural Vermont from Manhattan still earn city wages. As a result of migration, primary markets are becoming saturated, making secondary markets the main focus, and tertiary markets secondary.
As inbound moves from higher-priced markets drive up prices, the dramatic double-digit price increases serve to rise all tides. The brokers interviewed believe that local residents get an economic lift as more people migrate to the area, bringing their city spending habits and salaries, likely creating more job opportunities in the next 12-18 months. Brokers also report seeing a shift in priorities as people are no longer tied to a geographic area for their job.
“We are seeing heavy migration patterns from the metro DC/Maryland regions, along the coastal corridor to Northern New England, including Massachusetts, New Hampshire and Vermont,” remarked Masiello. “In lesser populated, rural areas, people are now buying property and land that hasn’t transferred in 30 years or more, which is creating a lot of title issues.”
New Construction:
According to participating brokers, permit logjams, supply chain issues, and lack of builder confidence have created a dire shortage of new homes. COVID notwithstanding, significantly fewer new homes are being built while populations are increasing. For example, between 1950 and 2010, the number of new homes built in each decade ranged from 10 million to 14.5 million. But from 2010 to 2020, just 7 million homes were built, while the number of new households formed during that same time period exceeded 10 million.
The brokers interviewed advise communities to decide how to help the new inventory issue, which requires cooperation at the local level. “Overcoming the inventory shortage will be the responsibility of local planning boards,” said Masiello. “They need to assess the needs and act. We are not seeing the supply chain issue or labor shortages as bad as they were last year. There is so much cash in the market now just looking for a place to go to work to get a return.”
“Developers got caught in 2008, so they are not eager to jump back in,” said Gross. “In Lehigh Valley, it takes 3-5 years to approve a subdivision, which is a significant deterrent when you can get an immediate return in the stock market.”
Tips for Sellers:
- Even in today’s tight market, it is still important to put your best foot forward, so don’t skimp on staging, home repairs and cleanliness.
- Prepare your home for the market by hiring a professional cleaning crew and professional handyman/repair service to perform paint touch-ups, fixture upgrades, etc. This will encourage buyers to make their very best offers and result in fewer days on the market.
- Offering a home warranty can help encourage buyers to waive their inspection.
- Ensure all potential buyers are financially qualified.
- Consider the terms offered as just as critical as the price. A cash offer with fewer contingencies may be better than a higher offer with many contingencies.
Tips for Buyers:
- Get pre-approved.
- Have a substantial down payment saved.
- If you can pay cash, do so and refinance later.
- Be flexible on the closing date.
- Always make your best offer first and resist the temptation to hold back your effort upfront.
- Be willing to waive the inspection.
- Have the means to make an “additional down payment” if the appraisal comes in low.
- Line up short-term interim housing between sales to put yourself in a better position to compete in a multiple offer situation.
To learn more, visit www.bhgre.com.
