Another data point in real estate debate
Here is a flyer from a realtor a couple of weeks ago.
Here is what OCR produced:
The Real Estate market goes in what is referred to as 7 year cycles. No one knows why It works this way, it just does. Let me explain. For the past 50 years we have seen a repeating trend. We will have a buyers market for approximately 5 to 7 years (2007 2014). During this 7 year petiod prices will stay flat. Then all of a sudden we will get a sellers market (2014 - 2018). During the sellers market the prlces will skyrocket. Usually 30 to 50%. These sellers markets will usually last 2 to 4 years.
Unlike the stock market or individual stocks, Real Estate can only go as high as people can afford. This is not rocket science. I like to joke that Apple has not really invented anything new for ten years but the stock keeps going up from the momentum. We do not have that luxury in Real Estate. In a normal sellers market. prices will go up just so high, and then stop. As you have noticed in the past month, this end of a sellers market is just as abrupt as the beginning.
At the beginning of this sellers market (Four years ago) I saw financial statements from the buyer with enough money to have 30% down, reserves to cover shortfalls in the appraisal, and still have stocks and cash left. Over the past three years however I have watched those reserves get smaller and smaller. This year have seen buyers get down to the bare bones, cashing In their 401k's to get the down payment. Buyers just cannot pay the high prices that we are expecting ftom our listings anymore.
Now add in interest rate increases and poof. Buyers just cannot close the deal and the sellers market ends.
At the end of every sellers market we usually drop an average of 11%. We are starting to experience this now. Home prices have topped out. With a few exceptions we are not getting multiple offers anymore and are actually having to negotiate terms with the buyers. The buyers are still there. All of my listings are being tagged as hot homes in both Ziliow and Redfin. Buyers are wanting to buy but the buyers are afraid. The average buyer in Fremont has only seen one cycle; that cycle ended in a major crash. Buyers are afraid to be 'That guy' who bought at the peak and saw the market crash afterwatdx
Market Crashes We have only experienced two major crashes in history. 1989 and 2006. Both times the banks gave phony loans which created a fake market. THIS IS NOT THE CASE NOW. Both crashes were caused because buyers had nothing invested in the home (No down payment), and were willing to walk away. This tme it is different. Buyers have had to put down a minimum of 20%. Have excellent credit and high incomes to get a loan. These new home owners are NOT going to walk away from their home because it comes down 10%. Therefore the market will definitely not crash.
If you are thinking of selling then you should consider it now, for obvious reasons. If you are thinking of buying then you should also consider it now, since interest rates are going up, and going up fast. Interest rates are everything!