By MARO V. TITUS
Photo Courtesy of Sotheby’s international realty
Changes by the Federal Reserve to interest rates and ongoing news media reports are making potential buyers sit back and wait. People are seeing closing prices more than $90,000 above listing price, and a growing number of Americans assume this is not the time to buy much of anything, least of all a new home. Realtors don’t necessarily agree. More importantly, current statistics stand in opposition to these assumptions.
Across the United States, 21 percent of home sellers dropped their asking prices in July—the highest in the past 10 years. Why? Nothing remains at boiling point forever. Overheated markets with a share of home price cuts above 50 percent include Tacoma, Washington; Tampa, Florida; and Denver, Colorado. Many of these list prices had assumed 5 percent to 20 percent escalations over the last selling price in the area. Thus, what we’re seeing is a scaling back of excess pricing ambition.
The average consumer also believes that this nonstop price escalation is a joy to realtors. Not true, said Priscilla Geraghty, broker/president of Rand Atlantic Cape Cod Realty Inc. In 2016, Ms. Geraghty opened her brokerage, which has offices in North Falmouth, Mashpee and Hyannis and is continuing to expand. A third-generation Cape Cod Realtor, Ms. Geraghty has seen it all and proudly declared that “despite the stress of the current market, the great realtors on the Cape are adhering to high standards and maintaining attention to ethics.”
“We are above the norm in that regard,” she said.
Photo Courtesy of Kinlin Grover Real Estate
Another reason real estate salespeople are not busting out the confetti right now is that, absent ongoing housing activity, the market reaches a state of inertia. Housing is an important indicator of economic activity. Housing illustrates a direct relationship to the consumer’s ability and willingness to borrow and spend. When housing activity slows, that may not indicate a tidal wave of foreclosures, but equally troubling is the likelihood of consumers who are exiting the market. Either way it’s stagnating. A slowdown in the housing sector typically results in a ripple effect across other sectors such as construction, building materials and retailers closely tied to home improvement, furniture or home electronics. If fewer homes are being built, fewer workers are needed to build them, which influences unemployment. One need not get out the box of dominoes to observe the obvious impact.
When asked where she anticipates the leveling-off point will occur, Ms. Geraghty said she is looking far ahead, indicating that the generation following Baby Boomer children is smaller, and that’s where the economy is struggling. Real estate may be a roadside casualty in all this, but it is not the driver. Ms. Geraghty moves past the notion that this is reminiscent of the 2007-2008 financial crisis with a wave, reminding that the loan protections and other financial safeguards now in place with lenders make that less likely to recur. She advises her clients nonetheless, many of whom take out equity loans to pursue home purchasing in the area, to “consider your whole portfolio before making a decision.” Buyer characteristics are changing, she explains.
“Younger, savvier buyers are not tied down to their things in the way two to three generations earlier are,” she said. “They look at things for the investment opportunity.”
Photo courtesy of Sotheby’s International Realty
According to data maintained by the National Association of Realtors, the average home had 2.8 offers in July 2022 and spent 14 days on the market. Yes, this is down from 2021 data, but only by three days. Glaring statistic? Perhaps. Insurmountable? Hardly. Close to 40 percent of homes nationally are selling at or above list price, with year over year prices up 10.8 percent. Glimmer of national hope—June 2022 saw a 4.8 percent inventory increase—more homes for sale!
On the Cape, the situation is similar in ways, but given our seasonality factors, it is not quite a mirror image. From July 2021 to June 2022, the median listing price on the Cape went from $865,000 to $949,000, with a 10 percent decrease in the number of active listings (merely 566).
How does Ms. Geraghty guide her clients through this perceived chaos? Her one-word reply says it all: PLAN. She remains relatively unphased by price tags. Prices were barely anything—as interest rates change, pricing will change—is her take on things. Buyers and sellers alike need a plan. Particularly at a time when we see the pandemic resulting in a lot of emotional buying/selling, much room is left for buyers’ remorse…and that’s now evident. According to a recent survey by Clever Real Estate, nearly 25 percent of all buyers indicated they were unsatisfied with their home-buying experience. The survey of 1,001 people who purchased a home in 2021 and 2022 further stated that 80 percent of respondents compromised on their priorities. Spending too much is the single-biggest regret expressed by most.
PHOTO Courtesy of Sotheby’s international realty
Buyer remorse is foreign to Ms. Geraghty and her team of agents. Investing time in the decision-making process with clients, the result is a low rate of recidivism on the buyer side.
Nonetheless, many assume this trend will worsen as interest rates rise. Ms. Geraghty does not agree. “Interest rates have little to do with demand in this area. Buyers may hesitate if the rate goes above 7 percent, for example, but that is not likely to impact pricing,” she said. She emphasizes the importance of knowing your buyer pool. When you’re looking for second/three-season homes, the ones in the pool are Baby Boomers with retirement funds and younger buyers with higher incomes. “People are making money fast and switching homes fast,” she said.
So, then what’s the best way to level an off-balance real estate market? Always be guided by solid data when making impactful purchasing decisions. Sellers are best advised to price their properties within the parameters of the comparative market analyses provided by their agents. Buyers, in turn, are most likely to escape any post-purchase malaise by purchasing assertively and arming themselves with as much information about the neighborhood in which they seek to reside as possible.