Rochelle Lisner with Dynamic Business Solutions taught me that "when emotions run high, intelligence runs low". When consumers are making important home buying decisions, their emotions, positive and negative, play a critical role. And this can be dangerous.
We will not discuss buyers who are unreasonably optimistic because we aren't dealing with many of those today. Rather, today's buyers have experienced desperation as a result of fear, worry and frustration, and their judgment has been clouded as they attempt to weigh the risks associated with their purchasing choices.
Over the past year, buyers watched prices soar, interest rates steadily climb and inventory levels plunge, all while witnessing the rental market tighten like a snare drum and rental prices skyrocket. Their purchasing power withered before their eyes. As a result, they've felt unease and anxiety - to say the least. This was compounded when these buyers lost competitive, multiple bidding situations, creating an even more challenging environment in which to make "smart" choices.
Buyers who are financing their purchase routinely waive loan or appraisal contingencies in order to compete effectively with cash buyers. Regardless of whether they're financing, they may forgo home inspections and due diligence on coop or condo purchases to make their offers more attractive. And of course, they routinely bid tens of thousands of dollars, or even hundreds of thousands of dollars, above the asking price. YIKES!
Buyers fear missing out on low interest rates and being priced out of a rapidly appreciating market. Home ownership is becoming less affordable daily. To compound the problem, buyers fear being unable to save enough for their down payment as their rents rise. So - more expensive homes, and higher monthly costs are pushing wannabe buyers into making uncomfortable, aggressive and risky choices. And - with each day they don't own a home, they see themselves missing out on equity gains.
Buyers are less worried about finding the perfect home or making a great deal than being shut out of home ownership opportunities altogether.
For a while, even properties that needed work and properties that were overpriced were being snatched up. So far, the market has been kind to the buyers of these properties. But for how much longer?
The market has started to subtly shift over the past few weeks. With rising interest rates and continued stock market volatility becoming today's reality, buyers who were unable to secure a contract may have missed their purchasing opportunity and withdrawn from the market. The market's energy has weakened; we feel it with lower open house attendance and fewer buyer inquiries. The lightning fast pace of the market has slowed. Properties no longer seem to sell within minutes of hitting Zillow and StreetEasy but days, and with one, two or three offers, not a dozen. The market's momentum and over-exuberance are returning to a more "normal" and comfortable pace. The rate of appreciation seems to be slowing. Good - for everybody! Buyers, sellers and brokers will have time to think carefully and strategically about their choices and make smarter decisions.
The Fed's rising of interest rates is having the desired effect - to gently cool down an overheated market.
Obviously, we're keeping our finger on the pulse of what's happening in the market so our buyers and sellers can make informed choices. For our weekly, up-to-the-minute discussion and analysis, I encourage you to tune in to Michael's Monday Morning Moment on the Manhattan Market which we post on social media. We drill deep into market movement and activity, look at emerging trends, examine the level of newly signed contracts and swings in listing inventory. Knowledge is power, and it is our intention to help buyers (and sellers) fully understand their options in the context of the current market.
Please call or click with questions or comments, and please share this with anyone you know who is curious about what's happening today in the residential real estate arena.