The caution lights are flashing, and I’m NOT here to sugarcoat it.

 Caution lights are flashing everywhere, I’m not going to deny that – I’m not even going to try to spin it. I’ll tell you what we are seeing right now, that looks remarkably similar to 2008, and I’ll explain what’s different. You’ll want to make sure you caught last weeks update about the market shift because it all became more relevant this week. 

A flawed comparison. 

Buyers are backing off. Not in terms of entering the market, because mortgage applications are actually up – 28% higher than they were this time last year. They just aren’t going to buy a house that isn’t a good investment. In April, we saw 14% of pending transactions cancel and this is for a variety of reasons. The headlines want you to believe it’s because buyers are losing their jobs and life’s savings. The reality is inspections are coming back showing deferred maintenance and sellers are stubborn as shit right now. They are sitting on a ton of equity and have a good interest rate. Since their back is not up against the wall to sell, many are choosing to wait this out and letting their buyers cancel.

Now some buyers have gotten a little skittish, especially those who had their down payments in the market. You know the market that’s been on a wild ass roller coaster all year. They might also have some hesitations based on a possible recession. But the truth is a market crash is not possible unless prices come down. For prices to come down you need:

1. Poor loan quality from subprime loans. (not a thing right now) 

2. Mass foreclosures (unlikely when Americans are sitting on record breaking equity valued at 34.7 trillion) 

3. A negative equity crisis. (again, not a thing right now) 

Essentially, for prices to crash (which is what a market crash is in the real estate world) – sellers have to sell. They aren’t in that position right now. 

Three Signs

We are in more of buyer’s market. That is a message I want to scream from rooftops. Here’s four reasons why: 

1. Bidding wars are calming down. I want you to understand that 28% of homes are still selling above asking but that is actually less than last year. Last year we saw 32% selling above list and in 2022, we saw more than half of the homes on the market closing above list price. 

2. Less competition, at least for now. 

Pending sales are down 1.1% year over year. That’s not a huge number but I will tell you it is noticeable. My buyers definitely have more negotiating power right now. 

3. The Redfin article we previously discussed reports there are more sellers than buyers. Typically you want to see 6 months inventory on the market before you officially call it a buyer’s market. These are not typical times though, are they, my friends? With the uptick in inventory, the increase in days on market, and the recession fears – we do see this moment of hesitation out there that allows major opportunity for the buyers who are active at this precise moment. Redfin has predicted home prices will fall 1% by the end of the year. 

Maybe they are right. Maybe they aren’t. Either way, 1% is not a market crash. Some will argue with me that it doesn’t even warrant a buyer’s market because we still have a housing shortage and interest rates in the mid-6’s. To them, and everyone else, I want to share the success stories of my clients who have gotten contingent offers accepted this month, who have gotten $60k seller concessions for 3/2/1 buy downs and who have negotiated prices on homes above their qualification, down into their preapproval zone. 

Inflation Data 

Trump may get want he wants from Powell, finally! May CPI (Consumer Price Index) showed that inflation only rose a tenth of a percent, which was lower than expected. The market was expecting 2.5% year over year, but we got 2.4%. You may remember that Powell’s goal is 2% before he starts cutting his Fed Funds rate, but many are hopeful he will be proactive. (He usually isn’t, but let the people dream.)  The Producer Price Index also came in with better-than-expected numbers on wholesale inflation.

We care about inflation because it’s the mortal enemy of mortgage bonds. Powell cutting the Fed Funds rate wouldn’t necessarily help or hurt us. It’s the market’s reaction to Fed Policy that keeps us on our toes.

Before I go, I want to personally invite those of you in Reno to Coffee and Construction next Saturday. This is a free event for anyone who is current house hunting – for brand new or resale homes, for those nervous about inspections on the home in they are in contract on, for anyone wondering how to spot the red flags you should avoid in a flip or renovated home and for my dreamers out there thinking about building their own oasis someday. It’s open to homebuyers, homeowners, home hopefuls – all the homies are welcome. You just need to RSVP to save your spot.