Friday, September 9, 2022

Market feels Neutral, Inventory Suggests Otherwise

A neutral market is one in which conditions neither favor the seller nor the buyer. I am definitely picking up a feeling of neutrality in the market but it just isn't really there. So what do I mean by this? Buyers are kicking more tires, offering less than asking on reasonably priced properties, and sellers of overpriced homes are reducing their price. All of these things are a sign of market neutrality. Yet inventory levels are still well into seller's market territory with the MLS showing most of Clark County at less than two months supply. What gives?

Well a few things, first we just came out of a cycle which locally saw the lowest inventory levels since records have been kept. Early this year inventory levels were so low they were measured not in months, not even weeks, but DAYS! During these first few months of 2022, interest rates began to move higher in response to runaway inflation the likes of which hadn't been seen in 40 years. I believe that nearly every 'fence sitting' buyer panicked and made offers, largely out of a fear of being priced out of the market all together by rising rates. Despite more and more listings coming to market, the buyers came to market just as quickly until just a few months ago when listings began to outpace pending sales. Inventory was so tight for so long, that perhaps this uptick in inventory levels has given buyers a false sense of security. A neutral market has long been considered about six months with lower levels favoring sellers and higher levels favoring buyers. We are less than two months right now so why are we seeing such bravado among buyers?

In a rising rate market both buyers and sellers get really nervous. This anxiety can make a seller impatient and lead to a lower price to secure a buyer. Buyers however are also feeling a pinch to secure a home fast and not have to pay higher interest rates that translates into less house for a larger payment. For younger people under the age of 35, they have never seen 6% interest rates in their adult life. From their perspective rates are high. But historically rates are still lower than the 50 year average. Older people can remember rates in the 7s, 8s, and 9s and people my age remember double digit rates at times approaching 18%. 

Buyers should ask their agent to evaluate the market and determine if the seller is inline with recent sales. Prices are rising at a very modest rate right now some a similar home that sold last month in the neighborhood should be a fair representation of value and an agent should be able to help make the comparison. If the the price of a home a buyer is interested in falls at or below that mark, then make a full price offer and be done with it. Don't try and beat up a seller who already has a good price. This is still a seller's market and the listing agent likely knows she is priced right. Buyers should remember that rate pressure is intense right now and they really do not have the time to monkey around trying to steal a house in a sellers market. 

If inventory climbs to more than six months supply we will be having an entirely different conversation. Again at the risk of being repetitive, we currently have less than TWO months supply. Buyers need to focus on their goal and not get greedy. A feeling of market neutrality is a mirage. Things are slowing down, but the range top is still really hot, touch it and you will likely get burned.

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