For the past few years, we have all experienced and perhaps, have gotten used to a frantic real estate market. From the onslaught of the pandemic which provided unique and exceptional circumstances for the housing market, to our economy rebounding and inflation currently rising.
Here’s the thing, the market is always going to change. In 2021, we saw the lowest average 30-year mortgage rate in history, at an average of 2.96%. The reason behind these historically low rates was due to the Federal Reserve wanting to keep the economy stimulated during the pandemic. Money was made cheaper across the board, including mortgages. Pair historically low interest rates with an incredibly high demand for housing, you get a real estate market where houses are appreciating at an astonishing rate and buyers are purchasing houses with an auction mentality (outbidding the next guy just so they don’t get it).
In 2022, we have seen the Federal Reserve increase interest rates with the goal of curbing soaring inflation. In just one year, we have seen interest rates go from 3% to 6% (currently where the 30-year mortgage is hovering). Buyers, sellers, and everyone in the real estate industry have had to quickly adapt to these market changes.
Here is what we are currently seeing in the market since the rate hikes in 2022.
Increased inventory and time on market: Buyers get to be more particular in this market because houses are not flying off the shelf anymore. Why? Interest rates are higher. A house priced in a market with a 3% interest rate is drastically different from a house priced exactly the same in a market with a 6% interest rate. It’s much more expensive in regard to monthly payments and affordability.
This has created a cooling effect in the market and a lot of buyers have hit the pause button, waiting for home prices to lower and catch up with current market conditions. This cooling effect and shift in buyer mentality and affordability have put a stop to houses selling in record time.
We are seeing more inventory and longer days on the market. In 2021, the median days on market for a residential listing in Enumclaw was 8 days. Currently, the median number of days on the market in Enumclaw is 35 days. Market time paired with increased inventory is resulting in the auction mentality we experienced last year to come to an end.
Increased negotiating power for buyers: In 2021, we saw buyers waive every contingency, including, financing, and inspections. They put more cash down in the event of a low appraisal and they offered non-refundable earnest money just to outbid the next guy and get into a house.
Now we are seeing the script change. Buyers have more ground to stand on and are actually experiencing for the first time in a while, the ability to negotiate for their wants and needs. Sellers are having to adapt to this change.
At this time, it is important for sellers to hire an experienced real estate agent to professionally market and sell their home.
What will 2023 look like? Most industry professionals and economists believe that 2023 will likely return to long-lost normalcy in the real estate market. Mortgage rates are expected to stabilize while home sales and prices moderate after recent highs.
So, to answer the looming question that may have been on everyone’s mind at some point – is the real estate market crashing?
We don’t think so nor predict that happening. We had a wild ride from mid-2020 to mid-2022. The real estate market is living and breathing and the craziness was bound to end at some point. Now, we get to relax back into a seemingly normal market. Buyers for the first time in a long time have more options, negotiating power, and less stress. Sellers get to capitalize on the high market and still sell their house for a great price.
Personally, we are welcoming and looking forward to this shift in the market. With greater stability and predictability in the marketplace, we can look forward to a more healthy and normal marketplace for both buyers and sellers.