Friday, April 16, 2021

Is the Market Reaching a Ceiling?

Real estate markets locally can reach a ceiling on pricing that doesn't necessarily mean a change in the supply or demand but rather a cileing based on local incomes. Rising prices in our market and in most markets across the U.S. have been driven largely by a low supply of available properties combined with low interest rates. 

But at some point the entry level homes become so expensive that entry level buyers are priced out. During these times you might find a situation where a small 1200 SF house is fetching say $375,000 but just $50,000 more buys a home in the same neighborhood with wide the footage. As prices rise the bottom of the market gets very tight, and that can cause a disproportionate pricing pressure on that segment of the market. 

Furthering the problem is that small one level homes are in demand both by young people starting out and older people downsizing. Those that are downsizing often need the one level as stairs can become a problem for the elderly. This generally means that downsizing seniors will be willing to pay more for those types of homes. Downsizing usually leads to strong offers as the proceeds of a recent sale of a larger home give them a financial advantage over first time buyers as well.

To combat this first time buyers in the entry level market ought look at small two-story homes and townhouses as those are not coveted by the older buyers. There is less market pressure on a 1400 SF two-story house than a ranch style house of the same size.

As we roll into the peak spring listing period, the volume of new listings will be an important thing to monitor for buyers. So far in 2021 we are well under the typical number of listings, that continues to keep pricing pressure under a rapid boil. We may be near an income ceiling however as many buyers are being eliminated from qualifying. That may temper things a bit.

It remains a great time to sell.


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