Whoa Nellie! Market Slowdown is here. I got a message from Zillow on Monday letting me know someone was interested in talking to me about a condo we had for lease. This was the second condo a client of ours was leasing; it had failed to sell in a reasonable amount of time. In both cases, the owners were concerned the unit would sit empty through the holidays and probably till next spring. Everyone is concerned with cash flow.
We first mentioned the likelihood of a slowdown in our November 2017 Market Report. In February, I called one of our clients who was thinking to sell in September and told her she should consider doing so sooner. We could sense, through the reduced number of offers and fewer bidding contests, that there was a change at hand. By May, it was apparent to everyone the market had practically come to a grinding halt. Of course, that’s not exactly accurate.
Yes, sales are slower. However, inventory is still well below balance and sellers still hold the better cards with highly valued properties that road the last half decade’s wave of appreciation. It is also important to keep in mind that the market is not one giant cohesive unit. It doesn’t rise and fall in unison like a boat on the tide. Even in a down turn, some properties generate competing buyers while others begin to languish.
Markets move in cycles of ebbs and flows and although no on knew exactly when this retreat would arrive, industry professionals expected it. There is no one cause for the change; several factors contributed to the slow down.
Here are two Primary Causes
The first is prices out pacing wages over time. From 2011, the trough of the great recession, until now, single family home median prices have increased by 55%. During the same time period, wages rose 18%.
The second was rising interest rates. The Federal Reserve, in an attempt to cool what it considered an overheated economy, raised rates three times in 2018. The last one was at the beginning of November. Another is likely in December. Buyers find it hard enough to keep up with rising prices driven by lack of inventory, but when costs are accelerated by rising interest rates, it can be impossible. The median price for a Seattle home is currently $750,000 and a one percent change in interest from 3% to 4% adds just over $400 to the monthly payment.
Simply put, the market is tired. Come to think of it. So am I.