This market is giving 2019 with a bad haircut vibes

 The headlines are screaming doom right now. This correction in the real estate market is getting a lot of attention which only makes the current opportunity even more noteworthy. New builds slowing down…this week we got the latest data from the US Census Bureau showing new home sales fell 13.7% in May…that means buyers can finally breathe. And realtors who get aggressive now are going to win listings, lock in buyers, and own the market. 

Market Crash vs. Correction

Yes, we have to talk about this again. Why the drop in new homes sales? This is the lowest level in six months, which actually isn’t that long or a big deal, but it was well below economists’ expectations. So that’s what really got everyone worked up this week. We talk about this all the time. There’s the data and it’s usually flawed and revised later and then…AND THEN…there is the market reaction to the data. Here’s what this 13.7% drop tells us: 

1. Affordability pressure is real. No shit Sherlock. Mortgage rates are still in the 6’s and when you couple that every trip to the grocery store being a couple hundred bucks it makes folks feel poor. 

2. Sticker Shock. Prices are also not low. Especially for new construction. But the builders are in a tough spot, dropping prices has a ripple effect that sometimes does more harm than good. Plus it means buyers are spending less money on upgrades, which is where builders really profit. 

3. Buyer Hesitation. Boy oh boy is this real. The economic uncertainty, the non-stop political drama, and mixed signals…some just want to wait this out. It’s not smart but it’s understandable considering the state of the world. 

Nothing Burger 

I want to take a moment to just say, this data could all be a big nothing burger. One month of data does not warrant a “trend.”  May’s drop followed a surprise jump in April sales. Maybe the market (or the flawed data) just overshot April. Here are three more important facts to consider: 

1. Sales are still higher than last year. New home sales are UP year-over-year. 

2. Builders like DR Horton and Lennar are still posting strong earnings. We aren’t seeing layoffs, price slashing or permit slowdowns. Multifamily housing starts are down in a big way, but single family starts actually ticked up. 

3. Inventory is still historically low. We don’t have enough housing to meet the demand. Period. Until we build our way out of this housing shortage, which won’t happen overnight, we will continue to have a supply and demand problem that will support home values. (and hurt affordability) 

What does this mean for you?

Let’s not debate if the data was a signal or a distraction. Let’s take it face value and see what it means for buyers, sellers, and realtors. 

Buyers 

Negotiate like you’ve always dreamed. Even with builders. Use your lender if you want, and demand you still get their incentive - they just need to sell the house. On resales, ask for the seller concession you need. You have nothing to lose and much higher odds than you have in recent years.

Make friends with your lender though. You need to make sure your preapproval is current given how quickly market conditions are shifting. They also should be keeping you in the loop on which financing strategies are working best. For example, ARMS have been a non-starter for the past few years, but they are back and worth considering. 

Sellers 

You should keep in mind you are competing with motivated builders who are taking advantage of the fact that they own the title company and lender to put together very attractive deals. Price accordingly. 

Realtors 

Educate your clients like teaching is your profession. It’s the only way to avoid frustration. Your sellers and buyers need to be aware of the points I just made but they also need to know that while everyone is talking like it’s 2008, if you really look at it – it’s just 2019 with a bad haircut. 

If you don’t remember 2019, let me ruin the humor by explaining the joke. In 2019 we had a slower pace in the market. Fewer bidding wars, buyers regaining leverage, it was more balanced. This market is behaving like that one, except with a lot more drama and noise – hence the bad haircut reference. It’s not the end of the world, it’s just kinda awkward. 

But I do hope you remember what happened to the market and home values just 18 months after 2019….