With Inventory Increases, Markets Begin to Turn—Slightly—in Buyers’ Favor
This informative article is directly from Sotheby's Realty global site...Great reading!
Amid increasing interest rates and uncertain economic conditions, we’re seeing moderate increases in home inventory, and buyers may find the balance of power shifting slightly in their favor.
Buyers—finally—are breathing a sigh of relief.
“Even though inventory has increased, buyers aren’t quite yet in the driver’s seat,” says Shelton Wilder, sales associate, Sotheby’s International Realty–Brentwood Brokerage. That said, “there is a slight change in negotiating power and keeping contingencies in place.”
While more homes may come onto the market in the coming months, don’t expect to see inventory increase overnight, says Lawrence Yun, chief economist for the National Association of Realtors. Total inventory was at 1.22 million units at the end of October 2022, up from the seasonal low in January 2022 of 850,000. The October number was down 0.8% from both September 2022 and October 2021. In October 2022, there was a 3.3-month supply, up from 3.1 months in September 2022 and 2.4 months in October 2021.
“We don’t anticipate a large increase because many homeowners won’t want to give up their low interest rate from refinancing or purchasing over the last two years,” Yun says. “We may see some moderate increases, but not anything drastic.”
Jim Egan, Morgan Stanley’s U.S. housing strategist, told Bloomberg’s Odd Lots podcast that inventory is one of the most important statistics with which to gauge the health of the market. “There are three angles we look at: new inventory, existing inventory, and shadow inventory/distressed,” he told the podcast. “The third is what you need for downward momentum in year-over-year prices; we don’t see that happening.”
“With the economy the way it is, I believe buyers are cautious, but, at the same time, with such little supply, we are seeing sales of properly priced homes still moving at a rapid pace,” says William Montero, global real estate advisor, Gibson Sotheby’s International Realty in Massachusetts. He says inventory is down year-over-year in Boston’s high-end Back Bay neighborhood, “though price per foot and sales are steady.”
Montero adds that under-construction luxury towers like Raffles and St. Regis Residences will likely fetch record prices for Boston—between US$2,000 and US$5,000 per square foot.
Homes being built are among the most important statistics facing the housing forecast, and at the moment, the U.S. is two million to six million units underbuilt, Egan told the Odd Lots podcast. Single-family home starts are likely to go down in 2023, compared with 2022, he said.
At the moment, though, we’re still in seller’s market territory, he says. “Technically, an inventory below six months of supply is still a seller’s market, and we’re at four months,” he said.
In a survey of leading agents across Sotheby’s International Realty’s global offices, more than 60% said inventory is low or very low in their regions.
“We are seeing homes on the market longer than last year and an increase in the number of price adjustments, but we are also seeing fewer homes come to market,” says Deirdre O’Connell, chief executive officer, Daniel Gale Sotheby’s International Realty on Long Island, New York.
According to August 2022 data from Realtor.com, in the top 5% of the market, the number of properties with price reductions was up by 95% on average.
Buyers have become pickier, Wilder says. “They now want homes that are turnkey, but sellers are sticking to their guns in hopes that they’ll get those spring prices.”
Buyers Win Back Some Negotiating Power
At the market’s peak, buyers often made desperate moves to get their hands on a property—making offers over listing price, dropping appraisal contingencies, and even forgoing home inspections.
Those days, agents say, may be behind us. In Los Angeles, “a buyer wasn’t even in the running or considered in a counter last April if they hadn’t removed the appraisal and loan contingencies—essentially, if they weren’t all-cash, their offer was no good,” Wilder says. “Now, as there are fewer multiple-offer situations, buyers are able to keep their loan contingency in place, but not often the appraisal contingency.”
In less-competitive markets, buyers may be able to ask for more concessions, like a negotiable moving date, or even closing costs covered by the seller.
Buyers may also have more time to make a decision. Homes are selling less quickly, with the average time on market increasing in September 2022 to 50 days, up 15% from 2021, according to Realtor.com.
Sellers Must Work Harder to Stand Out When Inventory Is Up
With fewer buyers on the market, sellers will need to work harder to make their home stand out.
In Chicago, even with only 1.7 months of inventory, it’s a buyer’s market, says Ryan Preuett, global real estate advisor, Jameson Sotheby’s International Realty.
Now more than ever, buyers are searching for quality, says Josh Behr, a real estate agent with LIV Sotheby’s International Realty in Denver, Colorado.
“The ability to present beautiful marketing assets to the right group of buyers and brokers, coupled with strong market knowledge and the ability to articulate the value of a property in a given area, are all vital to a successful transaction,” he says.
Pricing strategy is another important factor. Sellers should work with their listing agent to compare their home with others nearby that recently sold, says Dana Trotter, senior global real estate advisor and associate broker, Sotheby’s International Realty–Bridgehampton Brokerage in Bridgehampton, New York. “There's only one chance at a first impression when launching a property, and it helps to be competitively priced.”
The number of offers a seller receives may also depend on the time of year when they decide to list.
“The Hamptons market is typically very seasonal, so timing properties to launch in the spring or sell quickly before the winter is common,” Trotter says.
A seller with a rare property expected to generate multiple offers might decide to put their home up for auction, which can help to drum up excitement for the home and make the bidding war public.
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