Grassland Monthly Real Estate Recap: June 2022

--- Return to Erika's Website ---

There's a lot of panic, confusion and quite frankly, bad information coming from clickbait headlines and spectators right now.

E-V-E-R-Y-O-N-E has a real estate market prediction. There is a lot of [mis]interpretation of information and what we're seeing. And those getting the most attention with their forecasts are the ones playing on fear, using words like "housing crash" or "bubble."

It's a lot.

I've actually put off writing this a week or more than I should have -- partly because there's a lot to write. But mostly because every day, new information comes out and conditions are changing. I want to include everything, but will it all be relevant 48 hours from now?

I've come to realize: YES. (and if not, I'll put out another post!) But seriously, when we look at the big picture -- zoom out and pay attention to the broader market, historical data and what's actually happening now -- it paints a picture for the future that despite any small undercurrents, the water will still flow in the same direction. Data that I called out 2 years ago has lead to where we are now. So let's keep going!

Home Prices are Dropping

This is Myth #1. Do not be scared by this! A small part of what we're seeing right now is the typical June market in Williamson County. Would you believe that I listed a house on Memorial Day weekend of last year, the spring when Buyer intensity was the most insane with $100k+ offers and naming their first-born child after the Seller.. and we didn't get one offer?!?!?! This is a pretty common occurrence in an area where the market is driven largely by the school system and school schedule. School is out, vacations are in full-swing, we're approaching a holiday weekend and Buyers are CHECKED OUT. 

On top of that typical pattern, this year, the majority of what we're witnessing by price reductions is homes that were over-priced to begin with are having to adjust to new market expectations. For the past couple of years, we've had "speculative pricing." A lot of Sellers said, "This is what we want for our house, so let's see if we can get it." And often times, they got it. We are returning to a market again where that's not the case. Comps matter -- as does marketing, listing prep, staging and presentation. Communication and negotiation skills are also a must now. And in a market that turns like this -- so quickly and so dramatically -- it usually takes the side that's had the upper-hand a lot longer to recalibrate expectations. It's normal to see price reductions at the turn of the market, especially after only being on market about 2 weeks, when Sellers have previously had the upper-hand. But this won't last long. Sellers will start getting the hang of it soon, probably around the time that Buyers get back in the game as the start of school approaches.

The Fannie Mae Forecast Looks Bad

Myth #2 is actually more of a misunderstanding. A Buyer client of mine said this to me on Sunday as he discussed his concern buying now "because prices are expected to drop by about 15% next year" -- in his words. THIS IS NOT WHAT FANNIE MAE SAID.

Fannie Mae came out with their home sales forecast on June 10th. This forecast is a prediction of the number of homes that will likely sell - NOT SALES PRICES. They predict we'll have 13.5% fewer homes selling this year. 11.2% fewer homes selling in 2023.

As you can see from Fannie Mae's graph, the institution is only predicting 4,671,000 existing homes will sell nationwide next year, as opposed to the 5,285,000 prediction of homes sold this year. (And they may continue to adjust this forecast to an even lower number now that interest rates have gone up after this report was published.) But don't interpret this as prices are going down. What would affect prices most is how many Buyers we have to buy the homes For Sale. Are the numbers going down because Sellers are retracting from the market? Or because there aren't going to be as many Buyers? Both are probably true. But which group responds most dramatically could make all the difference (remember supply vs. demand).

Buyers are Gone

Myth #3 would be better put as "Buyers have temporarily paused." This is true. On top of the typical June lull, Buyers have stopped a sec due to the economy to watch and wait -- just as they did when Stay Home Orders were initially declared at the onset of Covid19, and again when Russia invaded Ukraine (at the same time, interest rates started to rise). But then business resumed as usual once we all regained confidence that we would be okay. In the case of Stay Home orders, it took almost a month. In the case of Russia invading Ukraine, it took about a week.

This pause right now, due to how dramatic our economy has changed, will likely take another week or two for Buyers to regain some confidence (totaling 4-6 weeks). In the past month or so, interest rates had the largest increase in 40-years -- up more than 3% since December, to 6.28%. This was happening while inflation hit a record high, gas prices went insane, the stock market took a beating -- and even crypto fell apart. It's been basically a 1-2 punch nonstop. 

Thankfully, since the fed got involved almost 2 weeks ago, home prices have stabilized (no more 20% annual price increases), mortgage rates have come back down to the 5.8% range, inflation is easing, people are buying crypto again and everything else is expected to stabilize -- which is why the fed took action -- it's all playing out as intended. Buyers will soon resume pre-Covid activity (think 2019 real estate market).

It's a Buyers Market now

Myth #4 sure seems true at the moment. But what's really happening is the market is normalizing. It's basically becoming a market where Sellers no longer have so much of an upper-hand and we may get to a point where Buyers and Sellers have equal footing again. An equal market is when we've got about 6 months of inventory. To have more than that is a Buyer's market. As of May, we've only got about 1.25 months of inventory in Williamson County. That's up from 1 month of inventory in April. While we are inching closer to a normal market, we're still a far cry from a Buyer's market. Still, the change is noticeable. Buyers have become more discerning in their purchases and Sellers are having to work more to actually "sell" a Buyer on their home! This is healthy. Take these graphs I made as an example of what's happening here in Williamson County:

In April, we had 471 homes For Sale and 9 fewer homes that Closed (sold). Homes only stayed on the market for 6 days during April and sold for $10,000 higher than they did the month before. The next month, May, there were 125 more homes For Sale than what Closed (sold). It's interesting to note that homes stayed on the market 2 days longer on average than in April, and May's sales price was $8,000 less than in April. June's numbers aren't yet closed out (due to so many closings happening the last few days of the month). But I suspect we'll see a similar trend, considering everything we've discussed above.

Keep in mind, year-over-year, comparing May 2021 to May 2022, our sales prices are still $246,000 higher in Williamson County than they were the year before. I expect prices will continue to appreciate in 2022, and even 2023 (depending on supply & demand). And as I've said over and over again in almost every post, the biggest difference we'll see in our values will be a decrease in the rate of appreciation -- not prices. So instead of gaining 20% value in 2022, we may just see our values increase by 8%, for example. And likely a lower rate of appreciation in 2023. To put this in perspective, we saw a 3% rate of home appreciation in 2019, and we were all ecstatic.

The Key to this Current Market

As Sellers recalibrate their market expectations, Buyers need to as well. For Buyers, it may look like lowering your price point in your home search in order to afford the monthly mortgage payment. Or getting in touch with your Lender to ask if they have any creative solutions (buying down points, changes in financing with an ARM, etc.).

If you can nail down an affordable monthly mortgage payment, therefore giving you a budget in your home search, you need to get out there now before interest rates increase again and all the other Buyers figure this out. Established Buyers may be sitting on the sidelines right now hoping for a market crash - but that's like waiting for a train that will likely not come (and in the meantime, interest rates may go up). New Buyers will be entering the market soon (perhaps as early as the 2nd week in July), and the key is to be ahead of the curve.

This is a national market shift -- not specific to our area. But our area will feel the same effects perhaps just not as harsh or as quickly as many other pockets of the country. I can tell you one thing as we approach this shift: I'm grateful to be living and working in Middle Tennessee.

--- Return to Erika's Website ---

For questions about selling or buying a home, please reach out! I'm a Grassland area resident and a Multi-Platinum Award-Winning Williamson County REALTOR ranking in the top 1.5% of agents in Williamson County. I am a Million-Dollar GUILD Member of the Luxury Home Marketing Institute, my market insights are regularly featured in broadcast media, and my success planted me on the front page of a December 2021 Nashville-area Magazine. But most importantly, I specialize in helping my friends and neighbors buy and sell homes.