What is Happening with the Market?

Buyers, sellers, and agents are closely watching today’s inconsistent market - and some are scared.

The market has softened in the past two weeks with some great homes getting no offers or selling for much less than previously expected. Apart from economic drivers, such as the increase in interest rates, inflation hovering around 8%, and the stock market taking a hit, we are seeing some nuanced consumer behaviors specific to the East Bay.

Here’s the big question: Do we foresee a noticeable shift in our East Bay real estate market?

*Spoiler alert*

Short term? Yes. Long term? No.

Let’s explain….

In the short term

The two primary drivers for short-term market instability are:

1) return-to-work uncertainty

2) summer vacations.

Many companies have announced, or are contemplating, return to work policies. This uncertainty causes consumers to pause any big decisions while they wait for the dust to settle. And those buyers that don’t pause their search are drawing back into more centralized locations, just in case they need to start commuting again.

The old adage “location, location, location” will become paramount as people return to work - and life - and return to commuter hubs and communities with easy access to work. The more peripheral locations will see a negative impact on value as demand drops in locations further out.

If you are buying a home, remain cognizant of the locations that are timeless. Central locations that were sought after 40 years ago, 20 years ago, and today are the ones most likely to bring you a return 10, 20, or 30 years in the future. Don’t get too wowed by design choices. Kitchens and bathrooms will age and interior design will evolve. A home in a central location will retain its value.

In addition to return to work policies impacting our real estate market, the biggest factor short term is summer vacations! This is the first summer since 2019 that a large number of people are taking vacations. Many people are redeeming travel vouchers from canceled trips in 2020 and making up for lost time. Nearly three-quarters (73%) of Americans report that they have trips planned —this includes 84% of parents with small children and 82% of millennials. With two large buyer pools engaged elsewhere, sellers will have a much less captive audience of buyers compared to previous years. (https://www.valuepenguin.com/summer-travel-plans-survey)

Seasonality will return to the real estate market this summer, and those sellers that cannot be flexible with the timing of their sale will likely have to compromise on their expected sales price. If you can wait to sell your home it may be best to shift your plans by a few months to skip the summer lull. The buyers that have the foresight and guts to buy this summer while everyone else is pulling back will reap the best reward.

Long term, what is in play?

Sellers have options and inventory is likely to drop even further. But, for the first time in a while, we will finally enter into a more balanced market.

This is incredibly important for buyers to understand. The market value of a home is determined by a willing-and-able buyer AND a willing-and-able seller. Sellers are able to pursue alternative options (such as renting out their home), instead of selling at a value too low for their future goals. Rents are the highest they have been in history and they continue to climb. Incomes have grown faster than inflation, and the Bay Area remains well positioned financially.

Sellers opting to rent coupled with interest rates locked in below 3% for many homeowners will cause inventory to drop even further as current homeowners are dis-incentivized to sell their home and move to another home with a much higher interest rate.

Sellers aren’t forced to sell, and they remain well positioned to wait out any shift in the market. With the incredible gains in equity over the past decade and historically low interest rates, we aren’t in a distressed market.

Instead, as people return after the summer, we will transition into a more balanced market. Buyers and sellers will need to engage in a more cooperative selling process instead of one solely dictated by the seller’s side of the equation. And when the market is balanced, buyers get pickier.

So what do we recommend?

For sellers, it is even more important to present your home in its absolute best light. Renovate that dated bathroom, update kitchen countertops, invest in landscaping, and don’t skip staging. This is not the time in the market to save a few thousand dollars and cost yourself offers and tens or hundreds of thousands in your sales price. The littlest thing can mean the difference between multiple offers (and leverage) and no offers.

Buyers, you should get pickier! You have a little less competition and a little more opportunity to wait for the right home within budget. But, remain realistic about the fact that homes that have universal appeal (i.e. everything that everyone wants in a home) will continue to have multiple, high offers. If you wait for the absolute perfect “deal” you might miss a great window of opportunity.

As you navigate through this changing market it is important to know that decision making will get harder and the quality of your agent will become increasingly important. You will need an agent that is well networked and has developed more nuanced negotiating skills.

The best advice we can give you

Don’t make a decision about buying or selling a home from a place of social, public health, or economic perceived crisis. We have been in a constant state of crisis for the past two years. And one might say that here in the bay area we have felt in crisis since Trump was elected. Knowing what you want to accomplish, remaining level-headed, and partnering with your agent will set you up to make the best decision for yourself in any market.