Real Estate Crash or Simply Gridlock?

Right off the bat I want to set your mind at ease. The Real Estate market does not appear to be in crash mode, at least
not of the 2008 variety with which we are all painfully familiar. This is an adjustment, admittedly an unusual one. I know… I too roll my eyes at the overused phrase ‘market adjustment’ but I really can’t think of a better term.

Real Estate market adjustments happen far more often than you might think. Indeed, adjustments are happening almost constantly in this industry, but not usually on the dramatic scale that we’ve seen in recent years. An influx of Real Estate investors after 2008 caused a steady rise in home prices and eventually the market appeared to be normalizing. There was a brief period when you could declare neither a Buyer’s nor a Seller’s market. That all changed a little more than a year ago when an unusual lack of inventory contributed to an unprecedented jump in the sales price of homes throughout the country. From the beginning it was inevitable that there would need to be a correction.

The correction is now. Mortgage rates are higher than they’ve been in about 20 years. Though recent increases in interest rates are not designed exclusively to influence the Real Estate market, the affect is the same. Our economy in general is slowing and the Real Estate market follows.

Home Buyers are finding that their buying power is severely limited by higher mortgage interest rates. Home prices are falling in some areas and in some price ranges, but not at a rapid enough pace to offset rising interest rates. Uncertainty about fluctuating rates gives Buyers reason for pause. Will rates rise again or drop enough to influence their choice of homes?

Home Sellers are on the fence as well. Many Sellers have not come to terms with the current market environment. The days of tens-of-thousands above list price, ignoring repairs and waiving appraisals are over. Not to mention the inescapable fact that they too will be facing higher interest rates as they move on to a new home. When possible, Home Sellers are choosing to stay in their current home and enjoy their low interest rate.

All these ingredients are baked into one giant case of Real Estate gridlock. We’re not experiencing a crash, just a stubborn but understandable instance of unwavering inaction.

So when will it all end? History tells us that uncomfortable economic conditions last until they are reversed, or until we become accustomed to them. I don’t see the first option happening any time soon so I’m thinking we’d better all get used to it. After all, until the period following the aforementioned 2008 debacle, we had never seen interest rates drop so low. Mortgage rates at 2, 3, and 4% were, in this day and age, an anomaly. Though we don’t like to admit it, the mortgage rates we’re seeing now are in truth, boringly normal.