What's happening with housing inventory currently? Is it leading to a market crash? For there to be a housing crash there has to be a sharp increase in inventory and there is just not enough inventory to indicate that the market is going to crash.
So, let’s play a little devil’s advocate. Right now with the economy having some changes and with interest rates doing what they're doing is there a chance that more inventory does spike to those levels where there’s not enough demand to support it?
Let’s compare for example last year to this year there. Inventory in general has increased. However, it’s important to take note of specific markets. The New England market is strong and it's strong for several reasons. Boston is bustling with all the universities and we always have people migrating here. The demand is super high demand is higher than the supply. What you see in a lot of news channels and whatnot is that housing starts are way up. It’s true that nationwide, they are way up. However, if you look at where they're going it's not New England. They’re in Texas, Arizona, or other places that have a lot of raw land that can be developed. We don't have that here right now.
So, how do we build inventory? There are three ways that we get inventory:
- Existing homes
- New construction
- Foreclosures and short sales
Sellers are putting their homes on the market. However, the inventory still isn’t enough to meet the demand. So, sellers today are still seeing a great return on their investment, especially in the New England area. Real estate agent Bunmi Okoya states “In the past like two weeks every single house that my clients have bid on did have multiple offers.”
The graph below depicts inventory levels compared to what we saw in 2021, 2020, and 2019. While we’re up from the levels we saw in 2021, we’re still down from what we had available in 2020, and significantly lower than in 2019.
How many new construction do you are you seeing right now in New England? The numbers are very low. Additionally, when these new come on the market, they're so many people bidding on them. What we’re seeing being built here are not federal developments or big developments being built. We’re seeing someone buying land hiring a builder and building their own home.
Compared to like 2008 the amount of short sales and foreclosures right now is very low which just points to the fact it's simple supply and demand. Demand is higher than supply now even. Even though supply last year was lower than what we have today and the competition was extremely fierce, demand today is still outweighing supply. If you look at 2008, a combination of things lead to the market crash. New homes were being built non-stop everywhere. On top of that, there were major issues with lending stringencies. The mortgage credit availability index was so high that anyone could purchase a home. People were getting homes that shouldn't have been.
The graph below depicts the number of foreclosures throughout the years. As you can see, the levels today are significantly lower than what we saw back around when the market crashed in 2008.
The Impact of Interest Rates
How have interest rates impacted the market? Last year, we had situations where there were 40 offers on any given home. That competition was crazy, and not healthy. Today, instead of seeing 40 offers on a home, you might see 10. Last week in Hudson, New Hampshire we still had a situation where we were up against 20 other offers. While it wasn’t 40, 20 offers are still pretty crazy.
There are still buyers out there! It’s true maybe some have exited the market due to higher rates, but there are still so many in the game. Compare it to taking a piece out of a pie. Yes, maybe you’re missing some, but there’s still a lot left.
What About Those Price Changes?
Now, what about all of those price changes? Would all of the price decreases that we’re seeing be a sign that the market is crashing? Let us tell you a secret. Pricing is an art. It’s an extremely important skill that the best agents out there have mastered.
The reason why you're seeing a lot of price changes is that the sellers or the seller's agent didn't price it well to begin with. If you have those good conversations and you're creative with your pricing strategy and you hit it right the first time you will not have to change your price. The whole reason for meeting with an agent to look at a comparative market analysis and price your home is to price it where you're going to get the most eyeballs online, fed through the door at open houses and showings, and get the most offers in hand to drive up prices. The last two years created this craze that everyone believes that they're going to get hundreds of thousand dollars more than they paid or more than they think it's worth. You may very well still get a high offer but if you don't price it where you'll capture the excitement, you won’t get top dollar. You price it to create the demand, not where you hope the final price will land.
The listing agent’s goal is to bring the most buyers in to see your home. It's a simple marketing strategy: the more people I can get to see your house the better chances of you getting the best value for your house so that involves your pricing strategy. After that, it’s all about how we take our pictures, how we describe the house, and how we show your house in the best light adds to what differentiates your home from all the competition out there. One of our favorite quotes right from Tom Ferry is “If the price isn't compelling, the home's not selling.” The price will get people to look at it and then the pictures, the staging, and the write-up that gets people through the door.
While inventory is increasing, there are still not enough homes to meet up with current demands. New England especially is still dealing with a lack of new construction and we’re not seeing those foreclosure numbers like we did back in 2008 that would indicate that we may be in trouble. Demand is still strong and homes are still receiving multiple offers. The key to this market is to price your home correctly and work with an agent that understands how to bring in the most potential buyers to fall in love with your home.