The Perfect Storm: What just happened to the real estate market?
What do all these real estate price reductions mean? Guys, Jeremy Larkin here. Hold onto your hat for this conversation about price reductions and for this incredible view.
Guys, there are a whole bunch of price reductions going on. And if you think you’re seeing it as a consumer, if you were an agent, you’d see what we see all day long and it’s like this:
“Price reduced 50K, price reduced 90K, price reduced 100K. Seller motivated. Seller says get it sold. Seller will look at all offers.”
It would almost sound like 2007! But it’s not.
So what sellers were doing is one seller would get 400k in the neighborhood, the next one would ask 420k, it would bid up to 440k. They’d ask 450k, it would bid up to 480. They’d ask 499k, it would bid up to 525.
Well, we got to that last rung on the ladder and the last sellers that were like, oh, we’ll try an extra 50 grand. This first round of reductions is that. We’re just taking a knife and we’re just whack, the cream’s coming right off the top.
We’re not yet at… I said yet, at falling prices, like falling home value. The last six times that interest rates went up dramatically, more than 1%, all the data, we’ve been sharing it for three months, showed that home prices actually stayed steady or went up.
I want to say to you that home prices *could* fall dramatically. I didn’t say they will. I need everyone to just accept it could happen. It’s hard for people to accept this. But accepting that reality doesn’t make it so.
However, I’m going to give you a “but.” I’m not telling you that the market’s crashing.
Now, I don’t anticipate a foreclosure market because people aren’t underwater. If you’d like to see my analysis on why a foreclosure wave is unlikely, watch it HERE.
Today I want you to understand that this round of price reductions that everyone’s hearing about, this is the cream off the top. The first important step in the market stabilizing back to a level of sustainability.
There was a perfect storm that was created that no one could have anticipated even a year ago.
1. Crazy, unsustainable home price appreciation. Home values went up stratospherically in a two-year period and astronomically in the last 12 months. That’s factor number one.
2. Inflation. We knew it was an issue and it just hit 8.6%, the highest level of inflation in 40 years. That’s factor number two.
3. Doubling of Mortgage interest rates. To combat inflation, they doubled mortgage interest rates in about 60 to 90 days. They went from about 2.8, 2.9%. Yesterday they were at 6.1%. That trifecta of factors just happened. That’s why everything went ballistic and out of control overnight.
My advice: Get with a professional if you’re looking to buy or sell a home and have a conversation and say, “Dude, tell me the truth.”
If anyone says, “This is absolutely going to crash. I’m sure of it.” Or, “It’s absolutely not going to crash. I’m sure it won’t.” They’re crazy. We don’t know. We’re guessing along with you. But that’s what just happened.
That’s my fairly educated, I’m not a professional economist, assessment of this. Remember, it was a trifecta, three factors, a perfect storm. They all conspired at the same time and this is slowing down the market quick.
Bonus factor #4: Consumer emotion feeding on consumer emotion. When consumers freak out, other consumers freak out and then they talk about it on social media.
50 years ago, 30 years ago, people didn’t get on social media and talk about all their emotions.
I don’t know what’s going to happen next, but I’ll leave you with this. People want to live here. They want to live in Utah. They certainly want to live in Deer Valley and Park City. They want to live in St. George, where my home is. People will continue to buy and sell real estate, but this is WEIRD time!
If you’ve got questions, message us directly or visit us at www.GoStGeorge.com and let’s chat!