The word is out. There’s a price correction going on in residential real estate; with mortgage rates rising
(although still lower than the rate of inflation… just want to point that out) and lots more supply coming
to market (in roughly a 5:1 ratio of new listings to sales), there is considerable downward pressure on
prices. So ends lesson Numero Uno of Economics 101.
And yet…
Sellers are staying strong.
They are not accepting the first offer that comes their way, low-ball offers, being impatient or panicking
when their respective properties do not sell overnight. In fact, there is considerable anecdotal evidence
suggesting that sellers who are not obtaining the prices they seek are simply cancelling their listings (i.e.,
taking them off the market); they’d rather wait it out than give away something below what they feel is
fair market value. Remember, the fundamental issue of a lack of supply has not been addressed and the
market will correct for this shortage in due course (could take a year… could take five). It’s not like
building costs have gone down, either. Sellers are not oblivious to these facts.
All this is to say that the current prospective buyer strategy of holding back and waiting until after the
offer date before submitting a bid on a property (in the hopes of this somehow wielding more leverage
to a less compelling offer) isn’t a fool-proof, knock-out strategy. Besides, others are doing the exact
same thing – so nobody is gaining any advantage. Moreover, I’ve seen first-hand several “unsuccessful”
sellers either cancel their listing (and instead pull out equity and invest in another property) or take
advantage of high rents (which haven’t come down) and elect to lease their property for the next 1-2
years. Real estate builds wealth in a number of ways.
People are tired.
Back in late February and early March, we were seeing evidence of the phenomenon of “buyers’
fatigue” where prospective buyers were simply giving up after losing out on too many bidding wars. This resulted in fewer bids received on each listing, bids not being as aggressive and listings taking longer to sell. Interestingly, I postulate we’re going to see the reverse in the near future, if not already: “sellers’ fatigue”. Ironically, once sellers tire of their listings not selling (at fair value), they will pull their properties off the market and inventory will decline. Lower inventory + higher interest rates = lower affordability.
… then we’re back to Square One for buyers — especially first-time buyers. And this is before we even start to consider the prospect of rising interest rates and more stringent mortgage qualification requirements.
Just be patient.
Ultimately, real estate rewards long term investors; the type who wait for prices to drop during the
‘tough times’ in order to buy (more) with the confidence (and patience) to wait to see a return not
before 2, 3 or 5 years, if not longer. Fortunes are made during leaner times but not realized until boom
times. Be prepared to play the long game.
Now, get ready to make some money.
