By Douglas Katz – 09/13/2022
Ask any real estate professional or lender how business is right now and you’ll likely get a bit of a grimace. While the market was generally optimistic about the possibility of capitulation and lowering prices, the full potential for return to a more normal market is still far off. Now we are once again seeing low inventory as a “seller strike” has taken hold.
The Calculated Risk Blog is reporting on this phenomenon in a recent article citing a split between the have to sell and want to sell homeowners and their different behaviors. Have to sell is exactly that. Per the article, there sellers are driven by “3 D’s: Death, divorce, and disease.” I would personally add to that relocation for a job or life event as well, but the message is the same. These people are selling, but they are always selling because the have to and their contribution to inventory is far below what is needed.
There was hope that the want to sells would be more active. These sellers are the ones who would move if the circumstances and market conditions are right because they want something or somethings that their current home does not have. This covers everything from growing families to those seeking a location or lifestyle better suited to their needs. While some, especially those fleeing certain states, are motivated enough to pull the trigger many are choosing to stay put in the face of an uncertain market and concern about what they can buy. As a result, they are staying out for now and that is causing problems.
As you can see by the graphic, listings are down over 10% year-over-year. Many were hoping that the shift from greed to fear would manifest in pricing and a rush to list and sell before the mortgage rate market further worsened and prices dropped further for homes. Unfortunately, the fear is driving more of a hide in the terrapin like hide in the shell until the danger passes reaction. This is further exacerbated by the pause by many home builders on new home starts as they struggle with dropping prices and inflation for materials and labor. So we basically have the worst of the last few years without the unchecked feeding frenzy that previously drove the markets.
Unless something changes, it will be a long cold winter for buyers and those who make a living in real estate. Granted, we could see a small increase in available properties from an additional have to sell group if the economy worsens or if inflation drives homeowners’ current situation to unaffordability. Forecasts for this, however, are well below the 2008 massacre that we saw from speculation and overbuilding. This time around, there just will not be enough homes to push the market into a better place.
For investors, this means the outlook is still pretty bleak for finding new projects, but there is a silver lining. Rentals have been exceptionally strong for investors. Many are finding some distressed properties that retail buyers don’t want but that can be turned around as a rental at a much lower investment than a flip. With rental rates up and vacancies down, investors are cashing in as renters scramble to find properties that meet their needs. Many of these are frustrated homebuyers who pulled out of the market until it improves or due to seasonality.