Real estate pundits are often quick to signal a change in the market and hail it as distinct market shift.
A national expert comes out saying interest rates are going to skyrocket. A government report says that home sales were down two months in a row and economists are calling it the beginning of a housing slowdown. A self-proclaimed market guru notices an increase in inventory from the same time a year earlier and proclaims the market has changed.
Whenever I read one of these stories or hear a so-called expert make a bold market-has-changed statement, I always take it with a grain of salt.
Over the course of every year, there are usually market bursts, where activity seems to be on the rise and market drops, when activity seems to suddenly wane for no particular reason. Whenever this happens, I always hear many of my real estate colleagues wondering if the market is changing.
What’s more, many agents get caught up in their own reality and consider that what they’re experiencing is identical to what every other agent in their market is experiencing. And that’s often not the case. There have been periods where business is slower than normal for us while someone sitting several desks away in our own office is busier than ever. And a month later, it might be just the opposite, as we’re in the midst of three or four escrows while a nearby colleague is bemoaning a lack of business.
So when people suggest that the market has changed due to something they’ve noticed in recent days or weeks, my answer is always, ‘check back with me in 6 months.’
The stock market can change almost overnight based on a single comment or concern spoken by a prominent public figure. But many stock market trades are made by automated computer systems that react and make buying and selling decisions based on some economic algorithm.
There are no algorithms in residential real estate. Buyers and sellers react based on hopes, needs and desires. Housing markets don’t shift overnight. They do so over a matter of months.
So when something unexpected occurs, it’s human nature to wonder if this is the beginning of a long-term change in the market. But quite often, they are just temporary blips in the market and all that chatter about the market changing disappears a month or two later when things return to the way they were.
You really have to wait six months to determine whether the market has really changed. A true trend will evolve over time. And a trend is far different than a blip or a bump.
Last year, the Fed signaled that it would start raising interest rates and between summer and the end of the year, mortgage rates went from the low 4% range to just over 5% in some cases. The prevailing premise was that they’d continue to go up this year.
But recently, the Fed switched its thinking based on its long term view of the economy. And interest rates have settled back about to where they were a year ago. To illustrate:
Feb. ‘18 – 4.39%
May ‘18 – 4.62%
July ‘18 -4.72%
Oct. ‘18 – 5.00%
Dec. ‘18 – 4.64%
Feb. ‘19 – 4.45%
So if you were making an assumption that rising interest rates would slow the housing market, between July and October that would have seemed believable. But now, rates are pretty much right back to where they were a year ago, which means that all that talk about rates skyrocketing was nothing more than knee-jerk proclamations from “experts” who think their crystal ball is clearer than everyone else’s.
So the next time you read about a recent trend in the housing market, take it with a grain of salt for the time being. If it’s really a shift in the market, the trend will continue to develop. And six months later you’ll be able to look back and know for sure.