“Be fearful when others are greedy. Be greedy when others are fearful.” Warren Buffett
Based on a detailed review of the South Bay Real Estate Market, I believe we are coming into a window of buying opportunities that we have not seen in several years. The three key indicators that support my belief include the following: Days on Market have increased nearly 40% from a year prior; Months Supply has increased month after month since January 2023; and the Close to List Price percentage average continues to drop from over the list price to under the list price in recent weeks. Inventory is rising, and with interest rates higher than they were in the past 24 months, fewer buyers are competing for homes. In the coming months, we are going to test who is a real seller in this market. Should interest rates drop, I believe more buyers will enter the market, but for now, competition is as light as it’s been, and inventory is higher than it was in the last 24 months. Days on Market should continue to rise and that historically has put pressure on sellers to reduce prices (typically we see lower prices in the late Fall and early Winter months). Couple that with high mortgage rates and continued inflation, and a rush of buyers coming into the market is unlikely.
Do not get me wrong, I am not saying that the sky is falling, in fact there are still many homes selling over the list price with multiple offers (nearly 50% of current sales are selling over list). For the long term, there is a long running supply imbalance as a result of the lack of capacity to add new inventory in the South Bay, but demand remains due to jobs, weather, education, and lifestyle. Also keep in mind over 60% of homeowners have a mortgage of 4% or less, so their motivation to sell is greatly diminished. Those that don’t need or want to sell may just pull their homes off the market or even add them to the rental pool, but for those that need to sell to move to their next home, settle an estate, or as part of a divorce, they will likely start to capitulate to market forces. According to the Fannie Mae Economic and Strategic Research Group, “the downside risk to total home sales is limited as more sales are being driven by life events rather than discretionary factors, and the cash share of purchases remains high.”
Experts mostly agree that the Fed has steered the economy into a soft landing or according to Fannie Mae at the worst a “mild recession. ” But mortgage rates are likely to remain closer to the 30 year average rate (7.74%) for the foreseeable future. After Wednesday’s Fed Meeting, the odds went up of one more rate hike, and it’s now widely accepted that interest rates will stay higher for longer. There’s hope rates will come down 50 basis points in 2024, but in the Fed’s Calendar, 2024 seems like a long way off. The effects on the real estate market can best be summarized by Mark Fleming, Chief Economist at First American, “Mortgage rate stability, even if the stabilization occurs at a higher level, is the key to a housing recovery.”
Home prices have only recently come off all-time highs set last July, and only by a few percentage points. However, homes needing updating or significant remodeling that sold with bidding wars during late 2020 through early 2022, are starting to collect dust as we head toward the end of 2023. Many of these sellers just want to see an offer, and that timely buyer looking for a discounted property just may resemble a knight in shining armor they are looking for.
There are two Warren Buffett quotes I think are timely in today’s market. “Be fearful when others are greedy. Be greedy when others are fearful.” The second is “Don’t pass up something that’s attractive today because you think you will find something better tomorrow.” No one will know in the moment if they timed the market right, but if the right property comes up at the right time, waiting to time the market could be your biggest mistake. When rates do eventually drop and buyers feel more confident again, katy bar the door because buyers will likely rush in from the sidelines looking to buy.
So what can you do to take advantage of this buying opportunity when many would be buyers are fearful? 1. Buy quality – remember Location, Location, Location. Look for desirable neighborhoods and streets; consider potential upside based on the value of the surrounding homes; and look for quality built homes that can be cosmetically improved. These buying “windows” have been few and far between and short lived over the past decade, so now just may be the perfect opportunity you have been waiting for.