Ask anyone who has been in real estate for more than a year, and they will tell you that the current market is "different." Many will talk about the shortage of inventory (there are fewer homes on the market currently) or the "lock in effect," but fewer are discussing buyers sitting out.
Based on analysis of the last three years of 2000-2500sf homes across Richmond, the current shortage of sales is not primarily due to inventory, but rather due to a lack of demand. As inventory spiked across Richmond in Q1 of 2023 (see below) all indicators of value showed a sharp decline in rate of appreciation (and price/sf showed evidence of decline). Currently, our months of supply sites 72.07% above that of one year ago (and that was 131.15% above the year prior). In short, this is not only an inventory problem, but a lack of demand problem.
Yes, the number of homes is at historic lows currently, and this is driving the "inventory problem" narrative, but the reality is that 8%+ interest rates have put serious pressure on buyers, limiting their budget and pushing many to the sidelines. This is why builders who have offered to buy down interest rates have performed well for the last year. If a sudden spike in inventory were to occur without a real decline in interest rates, I would expect a similar Q1 2024 to that of 2023 - a stabilization/decline in home values.
The market has been pricing in a rate cut for the last week, but according to Fed Chairman Powell on 12/01/2023, talk of cutting rates is "premature" and more rate hikes could happen. Its notable that the market has been very optimistic concerning rates for the last year and a half... so maybe we should adjust our expectations.
And on that note, take a look at the final graph...
Sellers have been living in 2022 for the past year, resulting in sale-to-list price ratios falling year over year for the past year. We all have to face the facts, high interest rates changed the market, and adjust accordingly.
What are your thoughts? How are you getting buyers to come off the side lines? How are you overcoming the objection, "But, my rate though!" :)