I wrote an article in February 2013 discussing the low inventory environment, wondering where the sellers were, and predicting that inventory would eventually start to rise, which would put a lid or even some downward pressure on real estate prices. To read that article click here. So where are prices and inventory headed now, a few quarters later?
I recently read an article in November 2013, by Nick Timiraos in the Wall Street Journal, titled “Hottest Housing Markets Hit Headwinds” that will help answer that question. The article opens up with, “Some of the nation’s hottest housing markets over the past year are cooling off as buyers balk at paying higher prices while faced with rising mortgage rates, according to a Wall Street Journal survey of market conditions.”
I was suggesting in my February 2013 article that, in my opinion, some markets’ prices were going to peak in the near future, and that buyers were about to cry “uncle” and give up on escalating offers and multiple offers. I believe now is that time in some markets, and that buyers have had enough. We will still hear of stories where there were multiple offers, and there will be anecdotes of “craziness” that suggest it is still a seller’s market; however, I believe the market will slowly evolve to a buyer’s market. It may take 2-4 more quarters before it is fully apparent, but I think the direction of the market is changing.
However, markets do not go straight up or straight down. When the DOW stock index was seemingly hurtling down towards 6,000 from a high of 14,000 in the year 2008, I thought that the market was oversold as it broke through 6,600 and was likely headed for a turn back up. It could not simply go straight down forever, I thought. While I did not predict the degree of the resulting recovery in equities, I did think it was about time for a turn back up. Markets eventually change direction, to some degree; they do not go up forever or down forever.
I wonder if the same thing is happening now in real estate. It feels like it’s time for prices to turn down a bit, or at least stall. The Wall Street Journal article goes on to say, “Inventories have stopped falling in more markets after sharp, steady declines. Meanwhile, demand has softened amid higher prices and interest rates. But the supply of homes remains low in many markets given the recent pace of sales.” It also says, “With home prices and mortgage rates rising, competition for homes has eased and supply has ticked up.”
Real estate is always a very local discussion and is deserving only of local analysis. I think it’s safe to say that broadly, the painfully low inventory and seller’s market in many areas is in for an alteration, it’s just a matter of degree and a matter of when it happens.
The discussion of how much of a change we are in for and when it happens is all better left to local players in local markets. Street by street and neighborhood by neighborhood, looking at supply versus demand and the evolution of markets is better discussed by the people that live in those markets. What do you see happening in your local market?