In the last few years, demand for homes rose faster than the available inventory for sale. This imbalance caused prices to increase (fundamental economic law in action). Many sellers waited to sell, hoping to get even more for their property. There was an oversupply of willing Buyers as a result, putting pressure on Buyers who were competing for the few homes available to make their offers more attractive than those of their competition. The real estate industry saw bidding wars become common.
What’s Happening
The market has now reached the point where houses are viewed as overpriced. Many Buyers will only consider a newer property in near-perfect condition, feeling that older homes and those in less-than-stellar condition are overpriced and require too much after-the-sale work to bring them into acceptable condition. At this point, houses are viewed as unaffordable since the average person cannot afford the average house.
This accelerating trend started in 2022 and has become worse this year. Many Buyers, in fact, the majority, have resigned themselves to waiting. Sellers, who view their home’s value based on the recent market history and what they paid, wait to list their property, hoping that the market will recover. Overall sales volume is declining as a result.
In late 2024, home prices are near record highs, with few sales, and we are seeing a growing number of sellers decide to list their properties, thus increasing inventory. The market balance is swinging, leaving more homes searching for buyers than buyers willing and able to pay current prices. The inevitable result (basic economics again – supply vs. demand) is that prices must decline.
A Closer Look
Sellers who must sell (job relocations, health reasons, etc.) now see their home stay on the market. Their real estate agents are now marketing their properties harder than ever but with minimal results. The savvy Seller realizes that the master key that will solve the situation is price. By this July, industry statistics show that about 25% of Sellers have cut their prices to attract buyers. This statistic represents the highest percentage of reductions in a summer since 2018.
Now, housing inventory is higher than 2023 in most of the 50 largest U.S. metropolitan areas. Sellers, hoping to hold the line on prices, are not reducing their asking price, but that strategy results in homes staying on the market. The next phase of this decline is when more sellers decide to lower their property’s price to a competitive level that will attract buyers.
The Solution
Two possibilities could bring this market into balance. Either incomes have to rise, or prices have to fall by at least 20% (based on the 2008 decline in values where the median price fell nearly 20%).
Higher incomes will probably not happen due to the national financial situation. That means the sellers will be forced to adjust and feel the pain of reduced expectations.
As always, the first to lower their price will attract buyers under the most pressure to buy. Early adopting Sellers will benefit from quicker sales with less of a discount.
Those Sellers who persist in waiting for their price will remain on the market until they are ready to relinquish their expectations. Still, the market will likely have declined even more by then, leading to a more significant discrepancy between their initial asking and actual selling prices.
What to Expect
Houses are more overvalued relative to Buyers’ stagnant incomes than in the past so that price declines will be, at the minimum, equal to those of the 2008 period. If the 2008 period is any guide, the trend will continue downward for at least two to five years. There will be steeper drops in the most overpriced markets.
What Must I Do?
The takeaway is that lower prices are coming and can’t be avoided, so the quicker a home’s price is lowered, the more likely it is to sell quickly, thus avoiding the worst decline.
Please don’t shoot the messenger
The above is the kind of message that real estate agents hate to deliver to their sellers. However, representing their client’s best interest demands that the agent recognize and communicate the truth as quickly as possible. Remember, the rule is that the market cycles up and down. We are now in a down phase.
Reality is that which, when you ignore or deny it, will sneak around and bite you when you least expect it.
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