There is a lot of prognosticating going on these days. Whether it’s around the economy or the upcoming elections, Things are constantly compared with “normal.” But what is normal?
According to Webster, normal is a very technical term with many definitions. In the case we often hear it used, this is the most fitting definition: “according with, constituting, or not deviating from a norm, rule or principle; regular.” In a perfect world, normal would be the base line or neutral point. But, as we all know, the world is far from perfect and the base line is more of a hypothetical theory. In terms of the real estate market, normal is something of the past, or an ideal hoped for in the future. At best it may be described as the mean or average, but that really only applies to inventory and prices. So why even spend the time trying to define normal. I am making this attempt to illustrate a point; normal is more of a myth than something we can define. The only thing that has been normal in the past 15 years of real estate history is this – Change is constant.
15 years ago the market was shifting as the result of one of the worst financial crisis in history. Bad mortgage loans took the economy down with it and many people panicked. As we now know in hindsight, the real estate market recovered after bottoming in 2012 and grew for the past 10 years. Over the past 2 years, after another global crisis – The 2020 Pandemic – real estate prices grew 40%. This ginormous (my 4 year old just used that term so I thought it bears repeating) growth was the result of historically low interest rates, the fed’s flooding the market with cash, and a modern day migration unseen in modern history. And here we are today; interest rates have risen to levels not seen in 20 years, and people are begging for a “normal” market. Unfortunately, normal hasn’t existed for 20 years. “Normal” prior to that was mortgage rates greater than 7% for a 30 year time span, and much slower growth.
Today with the flow of information moving at the speed of light, real estate markets at your fingertips (literally on your phone), and a renewed focus on suburban living with a shifting workforce from the office to your own home, I don’t think the normal real estate market we knew in the past is the “normal” real estate market we will see in the future. 2.5% mortgage rates are likely to be a thing of the past, but people still need a place to live and people’s needs will constantly change (the old birth, marriage, death, divorce, and job transfers that many have heard me talk about).
Interest rates come and go, but our desire to live comfortably in the right home for our needs will always remain the only thing normal when it comes to real estate.
What’s Going on with the Market?
Let’s put things in perspective for South Bay Real Estate. Closed sales are only about half of where they were a year ago, but the market is right in line with where things were before the pandemic – with one exception. Inventory in many areas is only running about 1/3rd to 1/2 of pre-pandemic levels. So what does all this mean? Despite higher interest rates that we got used to during the past couple of years, buyer demand is slowing but not all together gone, but inventory is still lagging historic averages. As a result, months supply is still running below 3 months worth of inventory and as a result, prices remain stable.
If you want to sell a property, it’s still a fine time to be a seller, you just need to keep in mind where prices are today, not where they were in May. If you are a buyer, you have less competition for homes, which is a good thing for those that were shopping earlier this year. However, I highly encourage you to sit down with your lender to make sure you are getting the best option to fit your needs. With so many loan products available today, a good mortgage lender is your key to success if you plan on buying with a loan.
For more, please check out my weekly market updates to get the regular scoop on the market.
If you have any questions, don’t hesitate to reach out. In the meantime, enjoy the cooler weather!