Are we in a real estate CRASH? June 2022

Being a high volume real estate agent gives me a very unique perspective of what is happening in the Arizona Residential Real Estate Market. It is almost like I have a sample of the entire industry in my own business and I felt this shift happening a little more than 12 weeks ago. Many agents, lenders, buyers and sellers had not caught up with it yet and just are now starting to see what I was talking about.


What started the FRENZY?


CHEAP and FREE MONEY!

What I see is that we went from Frenzy (caused by cheap money) to a more normal market. Having interest rates as low as they were, was a huge reason that we saw buyers lining around the block to purchase a home. A percentage point in the interest rate means thousands in purchasing power.


One concern I have about that "Frenzy" was seeing that buyers were so desperate to "Not miss out" that they were waiving appraisals and inspections. And paying THOUSANDS over fair market value. I just hope that does not come back to bite them.


What ended the Frenzy?

MORE INVENTORY!

As more and more sellers watched as their neighbors made huge profits on the sale of their homes, they wanted to get a piece of the action. But these sellers did not come out on the market at a reasonable market value, allowing for the organic bidding war, they came out with the over inflated price their neighbor ended up getting for their home. This has increased inventory on the MLS with over priced homes. And now we are watching price reduction after price reduction.


INTEREST RATES: Of course interest rates are a huge factor when it comes to a buyers ability to purchase and how much they can afford to purchase. Interest rates have risen the fastest in American History just over the past 12 weeks. Normally increases like these are done over time and not this quickly. As I write this I was just notified we are getting another .75% increase in the rates the highest increase since 1994.


INFLATION: We have all felt the sting at the pump and the grocery store. And my goodness if you have done any home improvement/building projects you know the costs have gone up over double. I just put on a new roof on my personal home and a new HVAC and the cost was double what it was had I done it a year ago.


SUPPLY CHAIN and LABOR ISSUES: We can't look at the inflation sector without understanding that just as in Real Estate prices are based on supply and demand. That new Roof and HVAC had to be ordered and took over 5 weeks to get. And there is a Labor shortage on top of that as our contractors deal with a new breed of workers that don't want to work.


INVESTMENT LOSSES: The stock market is fluctuating and that also causes people to be uneasy about cashing in to get the funds to purchase real estate. The stock market nosedived again just the other day. Many of my cash investors have funds in accounts that if they use them have huge tax consequences or losses to absorb.


These are just a few of the factors that I see that are effecting our real estate industry.


THE GOOD NEWS!

Now the good news is this! We are not in a CRASH! we just went from a Frenzy to a more normal market. There is NOTHING wrong with a 5.0% interest rate. We are all just spoiled. I remember paying 10.0% for my first home. A friend of mine reminded me that she paid 16.0%.


What I suggest to sellers is to re-think your expectations. We are not going to put a home on the market and get 20 offers on the weekend. Just because you have a diamond dingleberry hanging over your bathroom sink does not mean it is worth more than the market will bear. Yes there very well could be that buyer in the haystack that will love that diamond dingleberry so much they will give you your over inflated price but you will wait much longer for them today then ever. And may end up taking less than had your been more realistic.


We now have to consider the competition in our price range as buyers have more choices as fewer of them are qualified to buy. During a time like this I like to tell my sellers to use the power of the NO! Rather than "Leaving room for negotiation" price it where you are willing to accept and offer and if a buyer offers you less, say NO! simple.


So if you get your home as clean as clean can be (shine like the top of the Chrysler Building), have it in good repair and price it fairly then give yourself a reasonable time on market, homes will still sell and people will still buy.


What I suggest to buyers is that 5.0% is not terrible. But it will mean you can't afford quite as much house as your may have when the rates were at 1.0%. There are not many predictions that interest rates are going to go back down. Nor is there indications that home prices are going to crash. Most predictions are proved wrong anyways so the best you can do is go with what you know NOW and what your needs are NOW! Do what's best for you and your family not some prediction that will change next week or month.


Happy house buying and selling!


Karyn Nelsen, a ModernDayAgent /Realtor that has closed over 500 transactions. Contact me anytime at 928-978-3246. Or my email is ModernDayAgent@gmail.com www.ModernDayAgent.Net






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