AM I TOO LATE?
Real estate is a wonderful investment, but it is so much more than that. A home should be a place of certainty, solace, safety, and enjoyment.
It’s these very reasons that finding a new one comes with so many feelings.
Often these feelings are triggered by that little voice inside your head that whispers scary things. We attach this feeling to the investment but doing so isn’t wise.
Lately, a lot of clients have shared with me that that little voice is saying, “you’re too late.” “Too late to look for a home!” “Too late to list your home.” You, too, may feel like you’re too late.
But here’s the thing. You aren’t.
You see, our brains are wired this way to keep us safe. That little voice exists to keep us from getting eaten. It makes us scared, and that’s exactly its purpose. Fear can keep us alive. Fear can also make us boring by keeping us from what we truly want for ourselves, but it doesn't have to.
So how can you tell that little voice who’s boss?
It starts with knowledge. Facts are the best way to neutralize fear. So, let’s start by understanding what’s truly happening with the real estate market. Stick around to the end, we’ll end by sharing how to send that little voice packing.
WHAT’S REALLY GOING ON
If you listen to someone new to real estate, licensed or otherwise, you may hear 50 Shades of 2008. But if you listen to a veteran, they’ll tell you this is nothing. They’ll then tell you that a 7% interest rate is child's play.
So which is it? And, why are people so diametrically opposed in their outlook? It could be down to their short vs. long-term memories or how long they have had access to market information.
August numbers are in, and when we look at the data over a short period of time, for example, the last two quarters, it looks a little unforgiving.
For example, if you look at the average sales price of a home over the last four months, you’ll see a scary story. A median sales price of a home sold in Orleans Parish was $238 in August, down from $272 in June.
When we look back at the past 10 years, we see that the recent drop has been repeated over and over again across the years. The market goes up, the market goes down, but the major trend line is positive. You’ll also note spring and summer price surges followed by fall listing price decreases; keep reading.
So what about the bubble? Are we in one? Are we repeating 2008? Or is this just more of the ebbs and flows of the market?
Let's Take a Peek At 2008
If you have to squint to find the year 2008 on the chart below, I did too. If you were surprised to see the peak of the “2008 bubble” happening as early as 2005, you’re not alone.
The 2008 housing crisis was years in the making. It was shaped by the buying pool’s ability to access property quickly and easily and with very few financial hurdles to do so.
The crash developed gradually, starting as early as 2006. It was a consequence of financial institutions overlending. Because they had over-extended themselves, they had very little money to stand on, and so when people did foreclose on their properties, the banks found themselves short; and they began declaring bankruptcy.
One by one, multiple banks filed. Bear Stearns declared bankruptcy twice. How do I know? I was working for Morgan Stanley in New York City at the time. They’d hired my team to work on their advertising and messaging. It was an exciting time to talk about how to talk about finance.
By 2007 the situation had gotten even direr, and I had moved on to working at The Wall Street Journal. We watched from down the street as our former happy hour friends at Lehman Brothers carted their desks out the door in paper filing boxes.
It would seem the sky was falling on Broadway and Wall Street, and the market certainly was. But the issue was clear, lenders lent to people who should never have qualified, sometimes even lending them easy money for multiple properties.
They packaged and repackaged this bad debt into financial products and hot potatoed it from one taker to the next until none were left and the money dried up.
This resulted in empty houses everywhere, empty desks at financial institutions, and a major financial crisis.
So why is 2022 different?
This year is different for so many reasons, but here are the top three:
Supply - We have more people than houses. Unlike 2008 when we had people holding the keys (and mortgages) to more houses than they could populate or afford, we have a housing shortage. Until that is corrected by the building of millions of homes, we will have a supply issue. This is compounded by the size of the Millennial population, and the problem won’t shrink until the population does, or we all get comfy living in much smaller homes in much denser neighborhoods.
Restrictions - We have far more restrictions on how banks can lend money and who can qualify for a loan to begin with. This has dropped the number of home foreclosures to historic lows. Unlike 2008 we do not have as many humans declaring bankruptcy or forfeiting their mortgages, not by miles and miles.
Knowledge - We have learned the signs and know what to look for. You can look at the chart above and the information provided and see that this is not the retelling of the same story. But there was a prequel. Get smart on the Dot.com bust of 2001, and you will begin to understand how the desperation that ensued allowed for irresponsible lending in real estate to begin in the first place.
But what about interest rates?
This year feels tight, and it should. The rising costs of basic goods and services are making everyone’s wallets light. The rising cost of interest rates means that borrowing money to put back in those wallets is increasingly painful to do, and the amount shared is lower.
This means it’s harder to get money, not easier, like in the early 2000s. But will this contribute to a crisis in its own right?
Are interest rates outrageous? Should you have acted sooner? How bad will they get?
Bank of America and Business Insider published this cheeky little chart.
It’s got an A+ from me for dramatic effect, but it demonstrates an important point. We’ve been spoiled in the extreme short term with rates below 6%. But rates at and above 6% are historically normal.
If you had acted sooner, you would have gotten a great deal. Acting now means receiving an average rate, not a crap one.
How bad will rates get? I wish I knew. Better to act on what we know than what might happen. When you do, try to remember that the average homeowner refinances every five years. The average first-time home buyer lives in their first home for just 3-5 years.
Homes are a big investment, but your rate can be temporary.
But What About All These Homes Going On The Market?
Interestingly enough, we do have more homes available to buy than we did in 2021. However, we have a long way to go to have the same number of homes on the market as we did pre-2020.In fact, according to Altos research, we’re barely back at 2020 numbers.
So while it may feel like everyone around you has a for sale sign on their home, it’s actually not the case. It’s simply more than we’ve seen in the past twelve months, and the homes are staying on the market slightly longer, so their days on the market are overlapping.
But What About All These Price Reductions?
Turns out it's entirely normal this time of year to see homes on the market decrease their asking price across the U.S. The total percentage of homes across the United States that decrease their asking price after listing is about 30%, and that number changes across the seasons of the year.
According to additional data from Altos Research, August, September, October, and November are prime months for price decreases. Why? They suspect it’s because the homes left on the market after the spring and summer buying rush get wise that they’ll need to improve their price or sit longer.
They also suspect the urge to spend the holidays settled in a new home motivates sellers to cave on pricing as we head into the holiday season. This creates a bit of a “decrease season,” and it happens every year.
This year the total percentage of homes lowering their asking price after listing this “decrease season” is slightly higher, but only slightly. And homes are still being bought.
What Are We Experiencing Now, And Is It Normal?
In 2019 we had a neutral market. It wasn’t massively biased towards sellers or buyers. It just was. Residential homes in Orleans Parish took 68 days on average to sell. This means that after the day they listed, they sat for a little over two months before someone else became the owner.
It’s important to note that the vast majority of homes sold in Orleans Parish are purchased with mortgages. This means that the buyer needs time to go through the traditional mortgage process, which typically takes 4-6 weeks.
This means that of the two months the property was on the market, half of that time or more was spent in contract negotiations. This leaves a reminder of just 2-4 weeks total on the market before someone made an acceptable offer.
And this was the norm for a while. In 2018 it took 66 days to sell a home. In 2017 the average residence took 67 days.
Thus it’s fair to say that prior to 2020, a home sitting for sale on the market for two to four weeks before going into contract was pretty standard. It was our old normal.
However, in 2020 things began to shift. Sellers began to gain the upper hand, slowly. And, rates started to dip. It was an unusual time where it could be argued that both sellers and buyers had favorable conditions. Rates were low, and so was inventory.
Inventory dipped further, and days on the market began to drop, slowly. This caused the shift to our more recent sellers’ market. Rates were still low, but homes were scarce. Buyers became competitive and time was of the essence.
The total number of days on market for a home in 2020 was 56 days. By 2022 it was just 44 days. Earlier this year, it was as low as 27 days! And this is the frenzied pace we’ve become accustomed to in a very short period of time.
That’s all starting to change, and it feels extreme. Buyers are doubting why they can’t find a new home quickly. They’re also having remorse when they’re the only offer on a property.
Sellers are starting to watch their showing requests, and ring door cams like hawks. They get nervous when their property doesn’t fly off the market at the open house. They take it personally when they don’t receive multiple offers. And they direct these feelings inward at themselves or outward at their realtors.
But what we’re witnessing from a market perspective is actually entirely normal. It’s the short-term past that wasn’t.
In the past couple of months, we’ve witnessed homes stay on the market a tad longer; 35 days in July and 37 in August. We aren’t back to our “old normal” 2019 numbers of 67 or 68 days, but we are headed that way.
Get ready for a couple of weeks on market if your home is priced well and presents beautifully. Or list with us and get your property leveled up before you list. We're seeing offers in 10 days or less.
That Little Voice In Your Head
… means well but is mistaken. Here’s why, and here’s what to do about it.
The little voice inside your head is an evolutionary trait designed to keep you alive. It senses change, and it interprets that change as danger. Why? Because staying where you are is safe. Going someplace new may not be.
Good for avoiding getting eaten? Sure! But unfortunately, it’s less useful when looking at market trends because it has a limited, super short-term memory. It once had to in order to keep you alive.
So when that little voice sees quarter-to-quarter change, when it reads bold headlines, and when hears your mother’s worries, it freaks the hell out.
It begins to shout, “stay where you are! Don’t move! Don’t budge! You should have acted earlier!! You’ll get eaten alive by the market!!!”
But the truth is the market is showing signs of getting back “to normal.”
How To Master It
Lucky for you, your brain has evolved to override annoying small voices. It does so by processing facts vs. emotions. You literally can tell it what to think and do!
The next time you feel like looking at real estate and that little voice starts getting bossier, look at the data available to you, and look at it over time.
Here are the questions to ask yourself:
How long do I plan to live in my new place? This is important because markets move. They always have. If you’re staying for several years (the average person spends 5-8 years in one home), the market will be in a different place three times before you put up a for-sale sign.
Why do I want to move? Are you moving into a new home to dollar cost average the market? Or are you moving for a bigger, more significant reason like space, proximity to work, longer-term financial stability, or to be closer to people and things that matter to you? These were all the top reasons buyers moved last year and always have moved. Notice making a quick buck didn’t make the list.
Do I have adequate representation? Am I working with an informed realtor who understands the moving pieces of the process? Are they freaking out, or are they familiar with the changes we’re seeing? It’s crucial your realtor have enough information and know how to stay calm when you are not.
Do I feel comfortable with my realtor of choice? Believe it or not, it may be important to your mental well-being and the health of your relationships and keeping your deal together to get comfortable sharing what that little voice is saying to you with your realtor. Trust me, we’ve heard it all. The more you share, the better empowered we are to help you reach your goals while keeping you sane.
Am I open to listening and trusting the process? Taking on a great financial endeavor - especially one as stressful as real estate - and doing so well requires letting go. There’s loads of misinformation available to you, lots of drama on the web, and market-specific trends and data that you’ll need to know. You’ll need a real estate license to access the hyper-local information and experience in order to interpret it well.
If you can go back to the facts, trust your realtor, and trust the process, you’ll override those pesky little instincts that mean well but are keeping you in place.
What’s Next? Some Facts To Neutralize Worry.
Rising rates are lowering demand, but this won’t make home prices plummet.
Why? Demand is slowing, but supply ain't growing fast enough. Not by a long shot. Homeowners are demotivated from listing their homes. Why? They have a favorable interest rate on their current mortgage. This makes monthly payments lower, low enough to be covered by rising rents.
Many sellers are in a position to hold instead of sell. They can wait until rates go down again. Or better yet, they can benefit from owning more than one property. This means that the inventory will remain tight, and thus, so will buyer choices.
Lower demand means less competition for buyers. This will mean fewer bidding wars. It also means more time to consider neighborhoods and properties and less pressure. But it doesn’t mean more properties.
If you’re looking to buy and you find something you love, it may not come around twice. By the time it does, rates may have decreased, and you may have a lot of competition again. Act now. And, ask your lender about programs to buy down interest rates in the near term.
If you’re looking to sell because you need to in order to further your personal and financial goals, you’ll need to price the property well, present the best version of the home you can and avoid the temptation to be greedy. The best houses in desirable neighborhoods that are priced smart are still getting offers and can get multiples.
Is It Too Late?
Not at all. The best time to buy or sell a home is when it’s right for you to do so. It’s great when homes make you money in a short amount of time, but that isn’t why they were invented.
A home is a place of certainty, solace, safety, and enjoyment. You should call a new place home when you’re ready to do so. You are in control of what that means. It’s certainly not too late. Don’t let that little voice cost you more than it's worth.
Voted Neighborhood Favorite by Nextdoor, Team Cool Murphy is a top-producing, licensed real estate team based in New Orleans, brokered by Cool Murphy, LLC.
Celebrated for her next-level creative approach to real estate, Elisa Cool Murphy is an award-winning, top-performing agent in New Orleans and the founder and leader of Cool Murphy, LLC.
Contact Her -
email: cool@coolmurphy.com
Facebook: @homeinneworleans
IG: @coolmurphynola
YouTube: @coolmurphynola
phone: 504-321-3194
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