Friday, May 10, 2024

Market Activity is Healthy

Chart from RMLS
Over the last few years we have had a very strong seller's market. Inventory levels were so tight in 2022 that supply was listed in days rather than months. In 2023 we saw inventory levels slowly creep up. Last month the MLS showed us at 2.5 months of inventory. This is a still a seller's market but new listings are steadily outpacing new pending sales. 

We should see resale inventory numbers continue to increase as the summer approached and progresses. A market with 4 months of inventory is healthy for both buyers and sellers. For sellers they control how fast or slow their home sells through pricing. As inventory increases sellers make the decision to either hold out for the ideal buyer that wants to pay a premium for their home, or to come in competitive and get in contract quickly. This is actually normal behavior in any market, but it becomes critical as we move towards inventory neutrality at 5-6 months.

For buyers they can now decide to hold out for the perfect house and pay a premium or to maybe make a few concessions in order to capitalize on a seller's desire to sell quickly. Here relative bargains can be found. A seller that wants to sell fast, will work with a buyer to gt the deal done.

I have always liked markets in the neutral range where neither buyers nor sellers hold an advantage. This is where true negotiations can happen and both parties tend to feel like they got what they wanted. 

As for buyers they should be prepared to have at least 3.5% down and an enough income to keep the house payment less than 40% of monthly gross income. Also total debt to income should not exceed 50%. Now credit score and financial strength allow these numbers to be somewhat fluid, weaker borrowers will need to drop that payment to 30% and the debt to income down to 40%. Super strong borrowers may be able to creep those numbers up a tad. Talk to a professional mortgage agent to find out where you stand before making any decisions.

Keep in mind that one of the advantages to owning real estate using a fixed rate loan, is your payment remains constant throughout the term of the loan. As rents increase and wages increase your payment begins to feel smaller and smaller. 

In my personal scenario, my house payment is now less than half what my house would rent for. Get in early while you are young and within ten years there is a very high chance you will be in my position with a low mortgage payment. It won't be easy and you may have some lifestyle changes, but your financial position will get stronger.

If you have really strong income, try to resist buying too much house. Start out with something you can afford even if you loses some income. That is not always possible in a high value market like SW Washington, but if possible spend less than the bank says you can. 

It should be a good summer for local real estate.

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