Impasse In The Market

Impasse In The Market

Continuing the conversation… about the impasse in the market…A kind of “stuckness” that set in right after prices hit their all time highs in 2022. That was when fears about inflation ratcheted up and interest rates doubled in what felt like the blink of an eye.

All those challenges have taken their toll on the demand side of the equation. They’ve made owning a home more expensive and they’ve reduced the ranks of buyers willing to brave the rigors of a sellers’ market.  

Miraculously, despite fewer showings, fewer offers and fewer hefty price bid-ups, actual sales prices have remained, more or less, at their record highs. It seems that while demand was dropping and the number of sales was also declining, supply was actually dropping even more! The continuing imbalance between supply and demand has kept upward pressure on prices.

A few months ago, inventory took an unexpected jump and presently we’re sitting on 30% more active listings than we had a year ago at this time. That shift has a lot of people, mostly sellers and their agents, scratching their heads and different conversations are beginning to creep into the picture. 

What does it all mean? Have we reached some kind of inflection point? The jury is still out but in the meantime here’s where that extra supply is coming from:

Absorption Rate: a big part of the increase in supply is the record low number of sales we’ve had both last year and so far, this year. 

Insurance Crisis: There’s no hard evidence but there are growing indications that more sellers in high fire zones are putting their homes on the market. 

Pandemic Rebound?  There’s been a surge of resale activity on homes that were purchased during the first months of the pandemic. With more perspective and more requirements to return to the office, millennials are rethinking previous choices. 

High End vs. Sweet Spot: Because of the increase in rates, middle tier buyers are topping out around the $1.6m mark. More homes priced above that are sitting longer or not selling at all. 

Aspirational Pricing: Sellers’ hopes always spring eternal and in many cases they are still trying to add a couple of hundred thousand to whatever the last comp sold for.  Some of those homes are sitting longer on the market.

Summer Cycle: Some of the increase in supply can also be attributed to seasonality.  There are always more homes on the market in the summer than any other time of the year.