In my December report last year, I noted, "It is interesting to note that in the last seven months preceding December, the median price has not changed that much...The median price took a sizable jump in December to $640,000. It looks like the spring buying season might be starting early this year." That was the case until April. The market was hot and we hit an average price of $703,000 in April, then the market changed on a dime. The Fed started raising rates quickly, inventories started to rise and prices started falling.
What is the old saying about stock investing? "Don't fight the Fed!" It seems appropriate for the housing market as well. This year is starting quite differently than last year with housing prices headed down and inventories way up. There is an ongoing debate regarding a soft landing (mild recession) versus a hard landing (deep recession). The CEO of Restoration Hardware stated recently,
"People keep saying, are we going to be in a recession? We're in a recession. Anybody who thinks we are not in a recession is crazy."
I certainly do not know what will happen, but it seems as though we are dependent on what the Fed does moving forward and how mortgage rates react. Markets can change and sometimes they change very quickly, much like last year. It is best to be ready to react to changes quickly.
Buyers were lucky just to find a house early last year. There was little inventory and there was a lot of competition for that small inventory. The market is much better for those looking to buy this year. Housing inventory is up and the chances of finding a home just right for you are much better. It is easier to negotiate. Sellers are more willing to consider lower offers and do more requested repairs. Some sellers are also helping buyers to pay down their interest rates. It is a much better environment to purchase a home, in my opinion, than last year. Prices may continue to fall, but it has been my experience that home buyers do better in the long run when they purchase in times like these.
We are well below the highs of last year. Make sure you look closely at the prices of similar homes to yours that sold recently. If the home sold more than a month ago, you will probably need to adjust the price of your home accordingly. If your neighbor's home sold months ago, the adjustment will need to be even more significant, probably about 1.5% to 2.0% lower per month, in Elk Grove. Remember, though, each neighborhood is different. Check your neighborhood or call me and I can help you find recent sales for your neighborhood. Home buyers may start getting active again in the spring so check the numbers regularly. If more buyers enter the market again (demand up), it could make for a little better pricing.
No one really knows what the future will hold. Last year, the Fed predicted that their Fed Fund rates would end 2022 in the 1% range. They were very wrong. The rate ended the year at 5.1%. My guess is that our market will continue down its current path until the Fed changes their stance. Still, I am optimistic that five years from now this will look like it was a good time to buy. For better or worse, I am a net buyer in today's real estate market using Real Estate Investment Trusts (REIT) and Delaware Statutory b Trusts (DST). I also continue to dollar cost average into stocks, bonds and cryptocurrencies. They are all long term decisions.
Note-I have sold some real estate lately to move into the REIT's and DST's. The decisions made sense for my retirement plans which leads me to say, check with your financial planner and/or your accountant for your personal situation and which investments make most sense for you. We are all in different situations and what makes sense for me may not make sense for you.
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