Friday, January 29, 2016

Bread and Butter Homes are Hot

The real estate market is pretty hot right now, but the bread and butter homes between 85% and 110% of median are really cooking. This is the price range that seems to draw the multiple offer bidding war. Homeowners thinking about selling and sitting on these homes are well advised to consider listing now, before interest rate changes push buyers out of the market and pressure eases. The middle and higher end homes are doing well but not getting as much attention.

Inventory has been very tight over the last few years and this is as much the cause of price escalation as the number of buyers in the market. 2016 could be the year that inventory normalizes as most homes have now fully recovered from the precipitous price drop of the 2009 crash. Sellers that were unable to sell due to owing too much have or will very soon discover that they are once again in position to sell.

If this leads to an expansion of available inventory at a time when entry level buyers are being priced out, we could see a mild slide or slow down in pricing. The opportunity for the entry level seller is now. There are many indications from leading economists that interest rates will likely begin to increase as the year progresses. Low rates are keeping modest earners in the real estate market. Even small increases in rate will have a noticeable effect on the entry level median to sub median market.

It is important to remember that these kinds of market conditions in real estate are not long term sustainable as incomes are not rising fast enough to keep up with housing costs. Prices have reached a point where light fixers are now in the mix of the hot part of the market. Just a year ago it was the clean, move-in ready stuff that was hot, but now pressure in the entry level marketplace is creating demand again for light fixers. Heavy fixers remain difficult to move since lenders are still uptight about condition.

2016 will be a solid year for real estate but I believe that inventory will creep up this spring along with interest rates and that will soften things up a bit as the summer progresses. Locally, a little softening will be healthy, not harmful.

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