Best Time to Sell in the Next 5 Years? Right Now.
Oh when the FED! Oh when the FED! Oh when the FED comes marching in!
Part 2 of 2: Why “Right Now” is the best time to sell in the next 5 years.
We predicted in DECEMBER OF 2021 in the article “Buying a More Expensive Home Just Got Cheaper” that we would see a super charged selling “season” that started and ended early in 2022. We also said that all the equity gain for the year would materialize in that timeframe (February-June). As spring melts into summer, prospective sellers now find themselves at an inflection point in the market. As the price appreciation bubble bursts (as detailed in part 1 of this series) how should sellers view their position in the market? Is it really possible to be the “best time to buy” and the “best time to sell”? Typically, those things are not correlated and it is either the former OR the later. As buyers start to regain their dignity in the market place do sellers really still hold the leverage (upper hand)?
The short answer: “Yes”
Sellers still command a great deal of leverage if applied properly and if the product they are selling is not a giant turd. Your time is running out if you want the crazy experience + great terms + over the top pricing.
The long answer: Nuanced but still “Yes”
What is the main price control in the real estate market? Supply and Demand. Supply and demand rules how markets move and real estate is no exception. It is more nuanced on the micro level obviously, varying market to market, and neighborhood to neighborhood. But this is the long answer, not the really long answer. So let’s keep a “macro mindset” as we address this:
Real estate like many markets, is also driven in part by emotion. After an absolute HEATER of a few years, the momentum is still on the sellers side. “Momentum” may sound like a nebulous word, but it brings real world implications in real estate because of the emotion brought in by market participants.
Motivated by young and growing families, millennials will continue to drive the market and plow considerable amounts of their net worth into the housing market. At least for now. **47% of all homes sold last year were purchased by millennials.**
Millennials are the largest home buying generation to date, and will be dwarfed by the Zoomers who are even larger. As more and more Zoomers enter the work force, more and more of them will enter the housing market. This will continually and steadily add pressure to the supply of available homes.
New home construction is becoming more cost prohibitive to build in the current economic environment. According to Trading Economics and the US census bureau “Building permits in the US, a proxy for future construction, dropped 7% to an annualized rate of 1.695 million in May of 2022, the lowest level since September last year and well below forecasts of 1.785 million. Permits fell for a second time after staying above 1.8 million in the past five months. Single-family authorizations dropped 5.5% to 1.048 million and authorizations of units in buildings with five units or more fell 10% to 0.592 million. Building permits declined in all four regions: Northeast (-20.2%), West (-7.1%), Midwest (-7.6%) and South (-4.7%).
This makes building our way out of the supply side crunch seems less and less likely (at-least for the shot term).
Interest rates for home loans are a factor as it does give buyers less purchasing power/ causes their monthly nut to be bigger for the same house. HOWEVER this also discourages owners who are only moving because they “want to” vs people who move because they “need to”. Many homeowners will opt to stay on the sidelines until rates become more favorable. This will result in fewer homes which will keep the supply depressed.
How long is “right now” ?
Sellers you have until Turkey Day. The current situation of being both the “best time to sell” AND the “best time to buy” cannot and will not last forever. If you want the ecstasy home selling experience you best hurry. Things like appraisal gap coverages, limited or waived inspection objections, free rent backs, and advantageous escrow dates and deadlines are quickly evaporating.
Final word to sellers
As the inflection point turns into a noticeable shift understand you still have leverage due to the supply and demand issue as a whole. Also remember as buyers get some dignity back, property condition, location, and micro level market conditions will start to play a larger factor in how fast and for how much a home sells. BE PATIENT! DO NOT PANICK IF YOUR HOME DOES NOT SELL IN 3 DAYS! This is totally normal even during hot sellers markets (historically speaking) . On the other side of the coin, understand your home value tapped out for the year (of 2022) around May. Do not list 10% over the May valuation just because it is August. The property value has likely not changed unless you made some significant upgrade(s) during that time. Proper pricing strategy will be critical and overshooting the mark could be a fatal mistake and something we expect many sellers to make in the near future. Expect YoY price appreciation of around 3-7% depending on your neighborhood as we move into 2023 and 2024.