The Real Estate Market Is Softening, Is It Because Of Too Many Years of Rapid Appreciation?

The real estate market is softening, is it because of too many years of rapid appreciation? Many people feel that we are headed for, or perhaps already in, a declining market, due to softening sales.  What may really be transpiring is an affordability conundrum here in the Southland, as well as rising interest rates and unreasonable listing prices by out of touch sellers.  Sellers’ that feel they should be able to list 20% more than a home that sold 6 months ago, will need to get realistic.  Barring only the most super homes in terms of location, features, and amenities, most current listing prices will need to reflect the changing market to get showings and offers.  

Overpriced homes will likely be very lonely on open house days except for “Looky Lous “.  But to be clear, while it may feel like a market diving, it is actually becoming a bit more normal.  The average appreciation, looking over decades of sales data, will find something closer to 3.7% when discussing the norm of a bell curve.  We have had a very abnormal market for 12 years beginning with the crest of highs in 2006 and the crash starting mid-2007, and continuing until 2012, followed by very strong growth as the economy recovered, but also because many buyers took advantage of the plummeted prices.  

Interest rates will continue to rise throughout next year and affordability will continue to be a serious issue as wages, even though hiring has been strong, have not kept up with housing appreciation. The consensus was for first quarter 2019 we may see the end of the 4% range; second quarter will bring the introduction of 5% if not sooner; and third quarter could usher in 5.2%.  Of course rates change daily and this is purely an educated guess by the folks at the KCM Blog.  Remember, when we hit the peak of housing costs in 2006, rates were in the 6% range.  The projected rates for the next year are, frankly, outstanding.  Although we had some brilliant years of government fixed rates for recovery purposes, we all knew that 3% and 4% could not be sustainable.  Home ownership is a mindset that enables average individual incomes to build wealth.

Does this paint a picture of doom and gloom?  Well, it shouldn’t.  Sellers will need to get realistic, so that the remaining pool of buyers can have a shot at buying their home.  Knowing that housing isn’t like stocks, you can’t always hold forever, people do need to move to get on with their lives.  These motivations should give us a bridge from seller to buyer, that could create a steady 2019.