So what’s happening with home sales? Are we really in a strong market?
Absolutely. At least from a seller’s perspective, we are in a very strong market in the Charleston region and in much of the country.
Here’s is what is so confusing.
While we continue to talk about rising home prices, home sales are FALLING in many areas of the country. For the past two months, we’ve seen consecutive declines in existing home sales nationwide. That’s right. Home sales are falling not rising. The most recent report by the National Association of Realtors indicates a drop of 3.2% year-over-year for the month of January nationwide with a 1.3% decline across the South. Furthermore, homes are now remaining on the market longer and are taking more showings to sell.
Charleston is different.
Yes, in Charleston, things are different. Last month pending sales were up 3% on average; however, the numbers were mixed with homes under $200,000 showing a decline in sales. The median sales price was up last month by 5.4% to $254,500. But market wide in Charleston, inventory levels dropped by 10.6% from the same time last year. While demand in Charleston is strong, it is likely that Charleston will begin to fall more in line with national trends due to inventory shortages as we move into the s Spring selling season.
What’s going on?
The explanation is simple. The store shelves are getting bare.
We do not have enough homes to satisfy everyone who is out shopping. Buyers are in the marketplace looking for their perfect place to call home but, more and more often, that perfect place is elusive. So, they wait - and wait. And the heavy bulk of buyers is pushing home prices northward, complicating the problem even more, as buyers are forced to adjust their pricing expectations.
The median existing-home price for all home types across the US is now $240,500 which is up 5.8% from this time last year. January is on record for being the 71st month in a row for year-over-year price increases nationwide. The actual inventory available for buyers is now down a whopping 9.5% below where it was just one year ago. And, just one year ago, inventories were already tight.
Why do we have a housing shortage?
One reason this is happening now is the consequence of builders’ reluctance to build in the recent past. Builders today are trying hard to catch up with demand but have a long way to go. And of course, lack of new homes available for sale drives more buyers into the resale market, tightening the resale supply. In Charleston, of course, the growing number of new arrivals is a big pressure on the inventory level as well.
Who does this impact the most?
The tight inventory and rising prices are having a clear impact on first-time homebuyers hoping to enter the market. First-time homebuyers now make up a mere 29% of sales. That number may continue to fall as this segment is disproportionately impacted by rising prices due to their lack of real estate equity. As home prices rise, down payments rise also. Another consideration is they are far more interest rates sensitive.
What should we expect as we move forward?
Action by the Federal Reserve Bank is beginning to edge up interest rates. The Fed has taken this action in anticipation of rising inflation, such as the inflation we are now witnessing in the housing market. Ultimately, we will see the Fed actions begin to slow demand marginally while helping to tap the brakes ever so lightly on rising prices. Note that in the early stages of a series of planned rate hikes, "fence sitting" buyers tend to get anxious and move into the market, adding pressure to supply.
But - this process will not be even.
Last week the CPI (Consumer Price Index) indicated that the inflation that the Fed is worried about may be cooling a bit. For the first time in 2018, mortgages fell following the CPI news - by 2 basis points to an average of 4.44%.
One piece of good news is that the uptick in wage growth over recent months should help buyers seeking to purchase who have benefited from rising wages and new tax law changes.
What to expect
Over the next year, expect conditions to mirror current conditions. We do not expect any dramatic changes. Inventories will fluctuate slightly, probably expanding somewhat, but not enough to offset demand. Additionally, it is unlikely that changes in interest rates will curb the current strong demand noticeably during the next 12 months.
If you plan to purchase a home soon, be prepared to be aggressive. You need to be informed and be prepared to act fast by getting prequalified. The most desirable homes move quickly. Hire a buyers’ agent to help you in this very challenging market. You will be glad that you did.
If you plan to sell in the next few months, you will have excellent pricing power. To maximize your return, you need to prepare your home, market it well and price it correctly. For your highest probability of maximum return, hire an agent.
If you have any questions about the current market, or any other real estate concerns, call me.
Happy house hunting - and house selling! Call me if I can help.
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