Friday, September 30, 2016 / by Brad Miklovich
Published September 29th 2016 we saw pending home sales of existing home sales fall 2.4% Nationwide, when no change was predicted. This is a number our team was anticipating, you can feel it around the office, it feels like the rug was pulled out from under the market. The numbers seem very slight, but when you are coming off a market that was constantly growing, and running like crazy any pull back is felt.
Just 2 months ago on a stage in Austin Texas the founder of Keller Williams Realty International; Gary Keller, was preparing the company for the impending "SHIFT". Gary talks about a market that is on historic highs and is poised for a drop. Of course any market shift will be felt in different ways in different parts of the country, the coasts drop hard and the interior falls in a much less dramatic way. As I travel across the country and meet with top Real Estate agents, you meet people who truly see the sky falling, they hear about a “shift” and feel like it is 2008 all over again. They are predicting a market collapse.
Here in North Eastern Ohio we see it a bit differently, I always liked the quote often heard in our Keller Williams Chervenic Office meetings "Stick with the rust, it does not boom and it does not bust" referring to Cleveland and the Midwest as the rust belt. The housing numbers locally do reflect what we are seeing nationally, but of course on a smaller scale. In Summit County we saw September home sales for Summit County down -.72% year over year, Cuyahoga saw similar numbers at -.89%.
The question is what is causing the sudden drop off? Rates are still near historic lows, the stock market is still working, and we have not really seen anything major happen in the economy or anything we haven't seen before geopolitically. I go back my hedge fund days and want to blame it on the election year. If you talk to any salesman locally they will almost all tell you the same story, “It’s like the buyers all went on strike”. I am here to tell you that, folks this is how markets work. All of a sudden they are working and moving higher and for no reason, all of a sudden, the water just stops flowing, the spigot turns off. The reason of course goes back to economics 101, supply and demand.
Locally prices are on FIRE. Summit County has seen home prices rise 11.5% year over year, Cuyahoga County +2.3% year over year. This is what happens, prices get to a certain level and the buyers seem to all look at each other and say "forget it", people just do not seem to want to chase this market higher. In the spring it seemed everything was on fire, everything was in multiples, if you saw a house you better have made an offer that day and it better have been over list price or someone else was going to buy it. Now we see buyers more willing to wait, they hear the news and the stories about the markets slowing on the coasts and they are unwilling to keep paying these high prices. Inventory is still a big issue. We just do not have the homes to sell. It is getting better to some degree but still a heavy sellers market.
You might say how does that make any sense? Prices are way up and inventory is low, but you see the market slowing? How? In market corrections it just happens, buyers just stop paying up, the sellers get caught up on the news and realize where prices are and inventory starts to creep higher. It is like the old saying in the grain pits (By the time the farmer starts selling they have already missed the highs, and are going to end up selling the bottom). My advice is if you are thinking about selling your home, now is the time, don't be the farmer. I think NEO is fairly well insulated with everything going on here locally, from an economic standpoint but we still feel it. With an election coming around the corner everyone is worried about interest rates. Did you know a .5% INCREASE has a $15,000 effect on your buying power? Assume you wanted a $1,050 mortgage payment (P&I) per month and the rate was 3.9% you could afford roughly a $213,000 house when rates creep to 4.4% it goes down to $198,000 then if we go up 1% which is not really alot at all by historic standards, your buying power slips to $189,000. That is a big deal!
What these numbers are screaming at us is now is the time, and it might be the last time we ever see this in our lifetime to both buy and sell. Rates are so low it is almost borrowing money for free and if you are thinking now is the time for a move up house, yes you are right. You might have to pay a little more for the next house but the rates will more than make up that difference. Imagine the market slipping back to 2015 numbers (-11.5%) from where we are today and a 1% increase in rates. Yikes!
The investment market has still been something of the ages. Multifamily demand is just amazing across the country. I have had the privilege this past month to spend some time with some of the region's top real estate investors and although some are looking to sell they are looking to redeploy that capital into bigger complexes of multifamily with some mixed office space. I was able to spend an afternoon with the top brass at Quicken Loans in Detroit this past month and as you gaze out of the offices of Dan Gilbert you see that he owns everything out of his window except two newly constructed buildings in downtown Detroit. I was told even investors such as him, are now having a hard time finding more to buy. I spoke with a prominent real estate attorney outside of DC this past month and they were saying that investors are happy to see 2%CAP rates. That is really really low.
If you are a first time home buyer just waiting to dip your toe into the waters, now is the time for you too. Lenders have loosened credit and some first time home buyer programs are back. We have lending partners even offering loans with as little as 1% down, and the good lenders are still closing loans in 30 days of less.
If you are thinking about Buying, Selling, Investing now is the time and it might still be the best time ever!!
For your entire home buying, selling, and investing needs feel free to reach me at: