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Think the U.S. Is Alone in Our Economic Woes? Think Again!

When researching the local real estate market, and even the national market, it is easy to forget that we are not alone in our current economic woes. In fact, there are some eerie similarities between what is happening here and in the rest of the world. For example, as recently reported by the Wall Street Journal, real estate developers in China are struggling to attract new buyers. Fears about a recession loom. Covid shutdowns are once again on the rise in large cities like Shanghai. The demand for homes and apartments is way down.

That sounds all too familiar over here. But one thing that is quite different about their market are the incentives being offered by Chinese developers to try and entice buyers. Many have been offering brand new cars and parking spaces as perks to new home buyers. Good deal. But they just get more creative from there. One company offered to give out a 220-pound pig to new buyers... I assume for the dinner table. One developer even went as far as to say they would accept garlic as a down payment! Now that would be a strange allowance in the U.S. While there are clearly some cultural differences, it is interesting, if not a bit relieving, to know that we are not alone in our current economic struggles.

What is Happening in our Local Market? Is the Sky Falling?

Locally, housing inventory is back on the rise after what felt like the most competitive two years to date. Colorado buyers have slowed their frenetic pace, and many have hit the brakes on their home purchases completely. They are afraid of what the current recession might bring, and how bad things may get. They are also being deterred by rising mortgage interest rates and inflation. But what does this slowdown actually mean for our market, and for home price appreciation in general?

The message we see in the media when something changes in the market is, “change is bad”. They act like home prices are going to tank and that things will spiral out of control. Although that is not impossible, it is a very bleak outlook (and generally incorrect). One reassuring thing to note is that when experts look at the data, 2022 real estate traffic seems to just be returning to levels seen in 2019, pre-pandemic. If you look at home showing traffic for this year, things are cooling off. But, they are just falling in line with stats we saw in summer 2019.

The inventory situation is similar. Purchases are fewer, and inventory is on the rise from the depressed levels it started at this year. But we have not even caught up to 2019 inventory levels. For perspective, back in 2019 we were already short on inventory, and prices were already on the rise. Even though the 2019 inventory looks high in this chart, things were already on the scarce side back then.

Historically, the average end-of-June inventory was 15,750 active listings. At the end of this June, we were only at around 6,600 properties for sale. That means demand still well outstrips supply in our market. Due to that fact, home prices are not likely to decrease dramatically like everyone seems to think, but appreciation should slow over the rest of the year. It is also critical to note that 2021 was a record setting year for home price appreciation and sales. Just because things are slowing down from 2021, does not mean things are stalling out. They are just returning to “normal”.

As inventory and interest rates continue to increase, traffic should continue to go down, especially in the fall and winter months. That is normal seasonality. Real estate and mortgage experts I talk to are optimistic about these market changes, since the past couple of years have been abnormal, and unsustainable.

The recent increase in inventory is bringing us slightly closer to a more balanced market, but we are still way off from that. This is still a seller’s market. But it is important that sellers realize they might not get as many offers for homes, and premiums are down a bit. If you overprice your home it will stay on the market longer, and you may have to accept a less-than-ideal offer after a price reduction. It has been happening more lately.

On the buyer side, you may be able to negotiate slightly more concessions than you would have last year, or get a deal on a property that sits on the market too long, but do not push your luck! Houses are still in high demand, and you do not want to get too greedy and miss out on the property you really want by asking for too much slack.

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