Spring 2024 Housing Market
The best time to buy a house is when no one else is. For many of my clients, they listened when I told them to lock something up in November or December of 2023. Thankfully for them, seven clients ratified contracts between Halloween and the end of 2023. Because as I predicted and expected, we’re off to the races again.
Spring is always a competitive time. When interest rates peaked in 2023 at nearly 8%, there was lots of panic. But now that rates came back down a bit, currently hovering in the mid 6’s, people are back out there and this spring is looking like every other spring thus far.
I already have some frustrated clients, so let’s cover some things you really need to know if you are looking for a home this spring.
1. Don’t Fixate on the List Price
Don’t pay too much attention to the list price – especially when it comes to properties new to the market. When a property is newly listed, anything can happen. The seller can get tons of interest or none at all. And that depends on a lot of different factors like interest rates, consumer sentiment, timing, weather, location.
The list price is the number that the seller and listing agent decided to list the home for, but it may or may not be representative of market value. Market value is what someone is willing to pay for a home. The way the listing appointment went, the agent likely tried to tell them to price it a little below market value to elicit a lot of interest, and the seller fought back to price it higher. Then they agreed to a number and that number rarely means a lot. The seller always wants more and if there are several people circling the house, they very well could get more.
Again, loud enough for the people in the back – Market value is what someone is willing to pay.
If a home is listed at $499,000 and several people are interested and bid it up to $520,000, then the market value of the home is really $520,000. Getting fixated on the price of $499,000 because it was the list price doesn’t help anyone. Once a home is listed and we see the inside of it, we then need to zoom in and look at the other factors – the comparable sales of similar homes, and work from that number.
2. Negotiating the Best Price
For some buyers, being able to negotiate and experiencing the thrill of the hunt is important to them. If negotiating on price and terms is really important to you, and it’s more important than getting the right house, then please pay attention here. DO NOT run out and look at all the new homes as soon as they hit the market. The ability to negotiate is very low when a home is new to the market and there is a lot of interest.
Focus on houses that have been sitting on the market where I can negotiate a better deal for you. To make this work, you have to be disciplined enough to not chase the same few houses every Thursday and Friday when they are listed. This is what everyone else is doing too. You have to go for houses that don’t show as well and that need work.
3. Waiving a Home Inspection
I never recommend waiving a home inspection entirely. It’s silly and can have catastrophic consequences. Most buyers are on board with this. Unfortunately most sellers are not. They don’t want you to do an inspection and if you do, they don’t want to be informed of what is wrong with their home because should you walk away, they have to disclose everything now that it’s been uncovered by a licensed inspector.
I often see people discuss this on real estate boards, saying very indignantly, “Why should I have to disclose what some random inspector says is wrong with my house.” Because you do. It’s now in writing, it’s been disclosed to you, and the ball is in your court to do something about it. Just because you’ve been living in a home with a hole in the roof that’s been leaking rain into the attic but you didn’t know about it, doesn’t mean you can continue to ignore it. You need to fix and disclose the repair or just disclose the issue.
What first changed with home inspections when the market tipped to become a seller’s market was that buyers would do them but they were “void only.” This reserved their right to do the inspection but they would not ask for repairs, they would just walk away if they weren’t happy with the results. Or even if they weren’t happy with the results, they could still walk away without penalty.
Some moron in our market decided to start this nonsense called a “pre-inspection.” The idea of a “Pre-Inspection” has been around for several years. Many buyers will do a home inspection before submitting an offer, for the sole purpose of not having an inspection contingency in the offer but still being able to do one on the home. A client once said to me, “This is getting expensive, we can’t afford to keep doing home inspections on homes we don’t get.” I said, “Yes, but you can’t afford to buy the wrong house either.”
Once a prospective buyer decides to inspect BEFORE offers are even due, you know they’re pretty attached to the house already. It’s always going to be hard to compete with someone who wants a house badly enough to pay for an inspection with no guarantee they can even buy the home.
4. How High Are These Escalations
The rising interest rates affect different price points of the market differently. Those in the $500,000 and below market were hit harder. That market essentially halted when the rates rose. There wasn’t a lot of change at the $700,000+ price points. That part of the market kept moving as if the rates hadn’t risen at all.
In the heyday of sub 3% interest rates, the escalations around homes priced at $1,000,000 would typically be at or above $100,000. We saw escalations as high as $700,000 from the outliers, but usually if the home was priced correctly you would see the homes priced at $1.2M rise to $1.35M – $1.4M range. At the lower price points, escalations were $50,000 – $75,000. These escalated price ranges make sense if you think about it. Lower priced homes may be sought after by single income families, so there’s less flexibility in the ability to escalate the price. And there’s more price sensitivity for those at the income levels who can afford the $500,000 homes.
What are we seeing now? The escalations are back on some houses. Don’t panic. They aren’t quite where they were. Yet. Right now, the homes closing in January in the $500,000 – $600,000’s might only have one or two offers. If they have escalations, they may range anywhere from $10,000 – $25,000. So far, there aren’t many escalations at the higher price points.
5. Which Homes Escalate in Price?
We have seen this show before. It’s always the homes that show the nicest, appear to need the least amount of work and are updated. They don’t have to have top of the line and latest trends in every room. But they have to be clean and well cared for with no visible repairs or big ticket items needed replacement. People will paint, but no one wants to replace a bathroom or an HVAC system.
As spring continues, I’ll let you know what’s happening out there so you can plan accordingly.