Positive Headwinds in the Air

I don't often plagiarize other people's points of view, but this week we received such positive news from our COMPASS founder (and Berkeley native) Robert Refkin, that I thought it worth passing along . . . .

Take it away Robert:

"Last week I was on CNBC’s "Closing Bell" to share my outlook on the real estate market and the initial positive signs we are seeing in 2023 (click here to watch the full segment). For the first time in 10 months, all of the statistics I looked at are trending positively and I wanted to share them with you here . . .

1. There was a 25% increase in weekly mortgage applications two weeks ago, and an additional 7% increase this past week.
2. Mortgage rates continue to move down to 4-month lows.
3. There’s an increase in buyer interest, open house traffic, and offers.
4. In the last quarter of 2022, 42% of Sellers were giving concessions to buyers at the closing table; a 10-year high.
5. Home-builder sentiment improved for the first time in one year.
6. Pending closings were down 30+% at points in the fall, but over the last few weeks we have seen pending listings in most of our markets nearly flat year over year."

In other words, the news is favorable on most fronts. (Tech cuts aren't exactly cause for celebration here in the Bay Area where so much of our economy is driven by this high-paying industry.) But putting that aside, the job market overall is trending positively according to the NY Times and Labor Statistics - in spite of the Fed's desire to tamp down the marketplace in ALL sectors.

Moreover, lenders like First Republic and Citi Bank are delivering closings within 15-18 days when fully underwritten, meaning that Buyers should be prepared for aggressive competition in the spring market. Please note, if you haven't yet aligned yourself with a solid, local lender, now's the time to do so - post haste.

As for Opens, Sarah and I had a steady stream of potential Buyers at both the Saturday and Sunday Opens for 9 Arroyo last weekend, AND the Brokers' Tour on Monday was the best turn-out we've experienced since pre-pandemic days when Agents made a habit of previewing properties regularly (as they should, but were precluded from doing so during COVID). Once Realtors® got out of the habit, they were slow to return. Now that they're back, it's a whole new ballgame.

Additionally, Buyers entering the marketplace for the first time won't have been previously approved for loans in the low threes, so they will have less sticker shock regarding rates in the mid-fives and mid-sixes than those folks who qualified for a higher purchase price and then had to adjust downward. (BTW - if you grew up in the era of double-digit interest rates, the mid-fives is still a very good rate, historically speaking.)

With multiple signs indicating that we may, in fact, have hit bottom in the last quarter of 2022 (or so says Robert) AND with seemingly renewed interest in real estate from the buying public, it follows that we should see the market begin to improve as well.

How much? The jury is still out, but just as downturns happen quickly, so too, do turnarounds. In fact, good properties that languished on the market in the fall, have quietly gone into escrow in January. Stay tuned. The next few months should be highly illuminating.

That being said, Sellers SHOULD NOT expect the returns seen in 2021-2022 as those numbers were fueled by low-interest rates, coupled with low inventory AND unprecedented COVID realities. Absent another pandemic, expect to see a more reasoned approach to the marketplace as we progress. (Sellers, please adjust your expectations accordingly.)

On the flip side, inventory will be leaner than it's been in the past few years (Why sell if you're locked in at 3% for the next 30 years unless you must?) so supply & demand will remain front and center as it ALWAYS does in a capitalistic free-market economy. Fewer listings will likely result in competitive bidding, and competitive bidding is where the land of leverage lives. "Leverage" is how we achieve some eye-opening results, so when Realtors suggest a "strategic" list price, this is why. I encourage you to listen to the advice you are paying for!

So if you've been on the fence about buying or selling, don't be. Values haven't fallen off a cliff; they've simply returned to the more normal highs of 2018-2019 (which were still HIGH comparatively!) As always, markets are relative, so if you sell for less than you would have last year at this time, you'll undoubtedly replace your home for less as well. It's ever thus . . .

It's in the winds.

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