Housing Market Update

On April 20, 2022 I published a video that I sensed change was coming to the housing market. There was hardly a news item out there aside from the podcast I quoted with Ivy Zelman, one of the most followed, and most respected housing analysts who predicted the market crash in 2008. Zelman had a lot of statistics both back then and right now about why things aren’t going to continue at the same pace. I sensed change was coming, and her podcast interview was the one source at that time I could quote to back me up.

I can’t tell you what it was. I’m not a genius, but I know people. I could tell by what buyers were saying. Buyers are the first to know when a sellers-market is shifting. Sellers are the last to know. The rest of us are in the middle, just waiting for the decision-making parties on either side to make their move. Or not.

The analysts and the media wait for statistics to come out so they can have “proof” for their story. Statistics are great. I love statistics. In college I wasn’t an A student, but I remember the day my crazy advanced statistics teacher walked in the room after our first test. He wrote this on the board. These were the test results.

The class hot guy asked if there would be a curve.

NO BRAD, THERE IS NO CURVE! Brad wanted to know why, and all 5 foot 2 inches of Professor Morty Feinstein pointed at the 100%.

As I said, I love statistics so I knew those odds weren’t good for me, and I must have been one of the 27 failures. I got my test and was shocked. I wasn’t one of the A’s or B’s, nor did I fail. I was the 100%. Why am I telling you this? Because this is why my friend called me Melissa Morty Terzis our junior year of college. And also, because I feel like I can say with good authority: Statistics don’t tell you the whole story when you’re dealing with real estate.

Statistics are a science. You can slice and dice statistics in many different ways. And statistics are only fool-proof when you are analyzing something that performs and acts like a science. The housing market is not guided by science and logic. There’s another huge piece: consumer sentiment.

Some consumer sentiment is a result from analysis of statistics by those consumers. But some consumer sentiment just results from what people need or feel will happen.

I always tell people about the day I worked for a homebuilder in 2007 and the phones just stopped ringing. And here we are again. The news shifted overnight. And here come the Monday morning quarterbacks, “Oh I knew this was going to happen, I’ve been saying it all along.” No, I’m sorry. I’m on many real estate message boards, Facebook groups, mastermind groups and absolutely NO ONE was saying this would end. In fact, I went toe to toe with most of my former brokerage, mostly because the agents there couldn’t understand simple math. Let’s review those posts, from April 2021.

Here’s me: “Statistics are great but they really only tell part of the story because there are things that can’t be measured in statistics like human behavior. The stats didn’t predict the last housing crash either. All we knew was ‘how did that Starbucks Barista buy a $1M house?’ What I think will happen is a compilation of people deciding they don’t want to live where they moved to, losing money on a sale, possibly walking away and like sands in the hourglass, here we go again. The massive backlash right now in people leaving the cities and urban centers to drive prices up in areas no one would touch a year ago – that is a problem. No stat will ever tell that story.”

Also me: “I respect the opinion that this isn’t a bubble but I wholeheartedly disagree. Simply citing the mortgage fraud for the last bubble isn’t the only reason we had a bubble. It was a bunch of factors that contributed. This round we have a pandemic, a massive shift in lifestyle wishes because of said pandemic, a panic rush to leave cities and move to places no one would have considered a year ago, and a whole ton of people who have gone into forbearance. When the time comes to pay, if the value isn’t there then what? It’s not going to be pretty. No one can ever really say “that was a bubble” until it’s been 6 months in the past anyway. That said, I’m discouraging clients to get into 50+ buyer bidding wars. It’s irresponsible in my opinion.”

Some of the biggest headlines this past week included this: Redfin and Compass laid off 8 and 10% of their staff already. We’re only 3 weeks in to the bad news and companies are laying off their staff. Well, a discount brokerage whose business model relies on volume and a highly leveraged brokerage that grew at a rapid pace, thanks in full to those delicious signing bonuses they paid agents to join them. I thought y’all were the disruptors. Shouldn’t you be disrupting? Or is that only in easy real estate markets?

Warren Buffet says, “When the tide goes out, we’re gonna find out whose been swimming naked.” This is how this played out last time. Let’s look at some stats though.

May 2022 vs May 2021, in DC the total dollar volume sold is down 6.5%. Median sold price is down 5%. The number of homes sold is down 11% in DC. Before you tell me it’s because of inventory, active listings are up 8%.

Arlington’s numbers for the same time period are also down. Volume sold is down 7%, median sold price is down almost 7%. The number of homes sold is just down 2% in Arlington, but the active listings are down almost 33%.

Alexandria has a different story. The total dollar volume sold is down just 3%, but the median sold price is up almost 14%. Number of homes sold is down 4%, and active listings are down 18%.

Montgomery County is tracking similar to Alexandria, with total dollar volume up 2%, median price up almost 13%. The number of homes sold is down 10%, and active listings down almost 13%.

What does this tell us? The migration out of DC and Arlington is still in play. People aren’t yet selling in droves in the suburbs, but this is coming. What doesn’t this tell us? It doesn’t tell us about the dozens and dozens of emails I’ve received from agents, announcing price reductions. Original list price vs sold price is what we need to focus on next. Assuming that sellers and their agents price based on comparable sales, and comparable sales are going down, original list price vs sales price. That’s the story we want in about a month from now.