Wow! Big changes in the real estate world over this summer! The sudden sharp rise in interest rates has caused all sorts of shifts in lender, buyer, and seller behaviors. What one hears most often among realtors lately is that we are returning to a “normal” market.
But how do we define “normal”?
Well, the stats from August do tell a tale. As you can see below, in Davidson, Williamson, and Sumner Counties, inventory is up and sales numbers are down. The ratio of sale price to asking price has gone from a point or two over asking in early summer to a point or two below asking last month. The situation is identical all across Middle Tennessee.
What we’ve seen in the past four years is certainly unusual. Mortgage interest below 3%, bidding wars on virtually every listing, houses selling within two or three days, offers going well above appraisal value and the resulting need for appraisal gap guarantees. Delighted sellers sifting through a stack of offers. Depressed, bedraggled buyers, finally getting a house on the third or fifth or seventh offer – long after the thrill has worn off. Taking the long view, these conditions are certainly not typical.
Now things are cooling off. Interest rates are in the high 5% to low 6% range. Houses are staying on the market longer and buyers have the chance to weigh options. The bidding wars have largely ceased and sale prices are no longer averaging above asking prices. Increased interest rates have decreased buyers' purchasing power and the upward pressure on prices has declined. More typical of how things have been over the past 50 years or so.
So, was the former situation abnormal? And is the current situation normal? My answer is this: they are both normal.
Residential real estate is about as pure an example of supply and demand economics as you can find. Low supply and high demand drive prices upward. And visa versa. Things are worth exactly what people will pay for them – not a penny more, nor a penny less. So, everything described above is perfectly normal. Things are functioning as they should. Unusual doesn’t mean abnormal.
So what do we do with this? I say: take a deep breath and proceed as if nothing is wrong. Because nothing is wrong. Like all areas of life, the real estate market is subject to all sorts of external pressures, and nothing is constant but change.
And always remember that a house is first and foremost a place to live your life. Over the long haul you will likely make money on your investment – but you may not. And that’s where the “place to live” factor kicks in. Life is about so much more than dollars and cents.