Are Buyer’s Running Out of Money?
Is a market correction coming to the beach? Our real estate market has only seen growth since 2009 and that means many of the current group of owners, investors and Realtors have never experienced in a declining market. But markets do change, they do correct, and they do decline and just because we haven’t seen a correction in a while doesn’t mean they don’t happen anymore. Let’s take a quick look at what’s going on so we can get a sense of where our market is and how we should move forward.
Here’s what we are watching right now… Affordability
Let’s talk about affordability. Real estate prices here at the beach have jumping dramatically over the last few years. I just looked and condo prices are up 33.3% compared to the same time last year, houses are up 15.9% overall and much higher than that in certain areas. Those are big jumps for buyers to have to keep up with. Add to that mortgage rates are up more than 1% since the start of the year with several more rate increases expected by year’s end. Put the two together – higher prices for real estate and higher prices for money (loans) – and you have a situation where buyers purchasing power is starting to be a problem… for sellers.
The hits keep coming…
In addition to real estate prices and money (loan) prices… Inflation is causing the price of everything else to go through the roof. The New York Times recently reported that the Consumer Price Index rose by 7.9% through February, the fastest pace of annual inflation in 40 years. Look around… everything costs more: Gas is higher, food is higher, the things we do for fun is higher. The price people pay to rent our beach houses and condos… higher.
The Other Side
There is also talk about the US being behind in creating housing units by 6 million. That new households forming daily, and they will need homes all while builder’s struggle to ramp up, hire crews, buy equipment, and secure supplies to build homes for these people. Because supply is low, and demand remains strong prices will continue to go up. Even here at the beach. I get that, and I understand it. In theory.
The prevailing sentiment is often… this time it’s different. I also know that things change… even when they shouldn’t. Buying and selling stuff (especially houses and condos at the beach) still comes back to affordability. Monthly mortgage payments are jumping and that is bad news for buyers, sellers, and renters. I know that it costs a lot more to live these days and that is a problem for buyers, sellers, and renters. I know that it costs a lot more to build homes these days and that is a problem for… see where this is going? I get that there are more buyers than there are homes for sale – I’m on board with that.
Here’s the… but
If buyers and renters can’t afford the ones being built, listed for sale, or for rent… then prices of ones being built, listed for sale, or for rent have to come down. And when prices start declining the slipper slope of perception kicks in and buyers start believing that if they wait prices will continue to fall… so they wait. And prices continue to fall. Sellers (especially those on the edge of making their payments) are then forced to sell for less. And the race to the bottom is on.
The Race To The Bottom
This race to the bottom will then continue until purchasing power is restored to a level that “makes sense” and buyers start paying more again. It’s simply a balancing act that has to occur and I think we are going to reach the tipping point in the next 6 to 18 months.
What Should You Do?
If you are an investor here at the beach and are considering selling – you need to be careful – we may be entering interesting times. The market has been going up each year since 2009 which means most Realtors have never seen a declining market and with hundreds of thousands of dollars – even millions of dollars – at risk… do you really want to trust your wealth to a Realtor that has never seen a market with eroding equity?
Who you have as your Realtor… matters. I was there in 2004, 05, and 06, when the market corrected, and prices were dropping by the day. We saw how buyers would walk away from earnest money deposits because they could buy a better property at an even lower price somewhere else. We successfully navigated those waters and were able to save or make our clients a ton of money.
Whether you are buyer or seller a property here at the beach we want you to max out your position based on your financial goals and the current market conditions so with this in mind and based on years of experience our advice breaks down as follows:
Short Term Owner (Five years or less): If you plan on owning your property for five years or less, we recommend that you list and sell it now. This allows you to lock in a really high sales price and mitigate all risk of price of price drops, tax code changes, and any other scenario that would have a negative impact on your profits. Remember, you can’t go broke taking profits.
Long Term Owner (Longer than five years): If you plan on owning the property longer that five years, we recommend that you simply sit back and enjoy the ride. This is because you have time to ride out the crazy ups and downs so they should not have much impact on you. We do suggest though that you look at your rental income and make sure you’re maxing that out. If you would like to get a FREE, No Obligation rental projection for your property we recommend you contact Beach Stays Vacations (beachstaysvacations.com)
Multiple Property Owner: If you own multiple properties, we suggest that you sell and take one or more off the table and protect the equity you’ve built up. Keep your best properties and consider adding new ones when prices drop.
Long Term Buyer (Going to own five years or longer): If you plan on buying a property that you will own for five years or longer, we recommend that you buy now… and hold it – longer the better. This will allow you to lock in s historically low interest rate and take advantage of high rental incomes. In addition, if you hold the property over time prices will go back up. If you do buy, we suggest that you max out your rental income. If you would like to get a FREE, No Obligation rental projection for your property we recommend you contact Beach Stays Vacations (beachstaysvacations.com)
Short Term Buyer (Going to buy and flip): If you plan is to buy and flip the property, we simply say – be careful. Operating on a short time frame escalates the risk of missing the market – for sure, but we do have people who are doing this and making big money.
Bottom Line
We are wealth builders, so our goal (whether you are buying or selling) is to build or protect your wealth – based on your financial goals and the current market conditions. Call us today and lets talk about how you can max out your position as a buyer, a seller or as an owner to continue building your family’s wealth well into the future.
Committed to your success,
John Moran – CEO The Smart Beach Investor | Keller Williams Realty AT THE BEACH TEAM
Keller Williams Realty – For Your Place at the Beach