May I please have the attention of anyone looking for homes for sale in Raleigh, Cary or Wake Forest? The current home buyer’s market will be going away soon and will be replaced by a robust seller’s market. Please do not wait too long to buy your home because there will be very little warning when the next shift in our real estate market occurs.
I hope everyone gets that message loud and clear. Do you believe it? Here’s a few things to consider that might help you understand why I’m making such a statement while we currently have over 10 months of real estate inventory in the Raleigh market area.
New construction has been cut way back
The Raleigh real estate market has always been one of the hottest new construction markets around. We have had as much as 50% new construction inventory and have consistently supported 40% plus levels. I just checked and we are at 26.4% today. Builders are responding accordingly to the reduced demand and cutting back on inventory levels.
There will be a lag in the rate at which these levels can return to more traditional amounts. When buyers come back into the real estate market, we will have a 40-50% shortage of new construction homes. This will drive price up. Think this might help create a seller’s market?
Builders’ margins are hurting right now and they will jump at the opportunity to recover lost ground. Just like you (or any responsible business person) would were you in their position.
The re-sell market is just waiting
If you think there are lots of homes on the market right now, you’re right. That’s because the inventory levels of unsold homes that are not new construction have grown tremendously. But there has not been a corresponding decline in average sell price in this group. The average sell price for March dropped 2.7% year-over-year. Take the same measurement for the 2007-08 period and it actually went up 1.6%.
With high inventory levels and far fewer buyers in the market today, sellers are having to reduce prices, generally speaking. But not across the board. Some are just choosing to wait it out and are okay with it taking longer to get their price, or at least reasonably close to it. Or they eventually take their homes off the market and wait.
When home buyers return to the market this group of sellers will be well positioned to increase prices because they never really reduced them by a large amount. And with a shortage of new construction homes to compete with, re-sell sellers will have quite a bit of pricing power. This is the very definition of a seller’s market.
There is pent up demand
People are still getting married, growing families, becoming empty nesters, getting job transfers, and experiencing the tragedies of death and divorce. People still need to move. That did not change just because the national real estate market tanked.
Much of what is keeping buyers out of the market is that they are having trouble selling their current home. We don’t have it too bad here, relatively speaking. But people in other markets that need to move here have had to put their plans on hold because their local market stats are much worse that what I quoted you a few paragraphs earlier.
Once that log-jam clears, and buyers are able to enter the market (read: increased demand) inventory levels here will drop like a rock and prices will immediately stiffen and begin to rise. When this occurs, the seller’s market will have arrived.
The media will report the shift right after it occurs
When you hear the traditional media reporting on what I am writing about today, it will be too late to take advantage of the soft prices and high inventory levels that exist right now. The market will have already shifted by that time and the new problem in home buying will be how to best deal with multiple offers.
Oh, one more thing, interest rates may not remain at 4.5% if demand crushes the capacity of lenders to process loans. When the currently reduced staffs at lenders begin to need to work overtime to keep up with demand, the price of those products may go up too.
This is a GREAT observation Bob. I agree that when the market “Shifts”, there will be many people “wishing” they had bought when prices and interest rates where at extremely attractive levels. I feel we are at or near the bottom of the shift and the families that enter the marketplace now, will be glad they did.
Hey Tom – One thing I’m convinced of is how fast it will change.
Bob – great article and you are right on! The number of people relocating to Raleigh (Triangle) area is growing daily! Showings are up almost 30% since the beginning of the year. More showings = more people getting into the market. You’re right in that it will change here fast!
Hi Pam – Well, at least you and Tom believe me. There’s tons of evidence to support this theory that supply will be absorbed amazingly fast with no capacity from builders to react for 6-12 months. That’s up to a year of short supply in a market that has paid the price for bubbles in other parts of the country. Our prices could easily rise 10-15% in a year and not affect affordability one little bit. I guess we’ll find out if we’re right soon enough. Tell Lee I said hello!
Hi Bob….I was just checking the Garner area to see how prices were coming along and your blog popped up…you’re just everywhere!
Anyhow, we’ll stay in touch…..great info here…thanks, Kate