A benefit of prices going up so fast in early 2022 was that future sellers may not have noticed – and they might be happy to sell for 2021 prices next year. But there are other items that will complicate the matter:
- With sales are down as much as 50%, the evidence used to determine values will be as thin as ever.
- Most of the listings are not selling. It’s been so long since that has happened – what do you do?
- Players will want to believe old principals – namely, it takes longer to sell now.
- There will be no change in the perception of realtors’ ability to help.
- Higher mortgage rates are here to stay. No help is coming, which is unusual in recent history.
The only hope is that there will be enough decline in pricing between now and March that buyers will be pleasantly surprised, and proceed with their plans to purchase. Working in our favor are the lousy tools we use to measure ‘pricing’, and how nobody wants to look any deeper.
It was here that I estimated that sales prices would have to come down by 30% to fully offset the effect of higher rates. I suggested that it would be a comfortable ride if that happened over the next five years, because sellers today shouldn’t mind getting 0.5% to 1% less than the last guy. It’s the cumulative effect of years’ worth of prices dropping that could see declines of 30% or more.
Will there be sellers who go for a 30% hit next year? Very doubtful, and most would rather wait it out for years before surrendering that much equity – and they may decide to never move.
What might revive the market next spring are reports that prices are 10% to 20% lower.
Could we get there by March?
The San Diego median sales price in May was $913,750.
In October, it was $850,000, or 7% lower.
The sales volume will be hitting all-time lows over the next 2-3 months – there are only 2,756 houses for sale in the county today – and only the highly-motivated sellers will be getting out. If the median sales price drops 2% per month, by March it will be around $770,000, or 16% lower than it was in May!
It may not impress everyone, but it should be enough to get buyers to take a look around! Of course, a lower median sales price is a lousy gauge and it doesn’t mean prices have dropped everywhere. There will be plenty of new listings priced really high, but will buyers keep in the fight? They should, because there will be 10% to 20% of the sellers who really need to move – you just need to dig them out.
Get Good Help!