By Douglas Katz – 06/06/2022
So, as I was perusing the headlines in my news feed today, this one from Fortune jumped out front and center. “Keep an eye on these ‘overvalued’ housing markets as the housing boom implodes.” Beyond the drama created by some of the word choices, it is relevant to homeowners as it represents a sea change in market evaluation. Just weeks ago, the b word was avoided at all costs, where now it is commonplace in any real estate news feed. What is important is what potential sellers should do now that we are headed for a correction and worse.
First, my best advice is not to panic. Cycles happen and corrections are part of them. What makes this cycle different is the length of the cycle and unprecedented supply issues and prices. A steeper incline will no doubt end in a more dramatic drop. I see the dollar signs in people’s eyes when they brag about their home values, but rarely with an understanding on the theoretical nature of their gains. Now when prices drop, they freak out and if planning on selling, they panic. Panic is not a good strategy, ever. If selling or planning to sell, homeowner’s need to reassess in a logical and informed manner with a good real estate professional who can temper their concerns and give them a good basis to plan.
Secondly, potential sellers need to realistically evaluate their reason for selling. Lifecycle driven decisions, like family requirements/preferences guided by the school calendar or divorce have an immediacy versus a scenario with empty nesters who are just planning to downsize as part of a 5-year plan. Under both circumstances, homeowners should be looking at whether this is the right time, but in the former example the right time is not as dependent on getting the highest profit. If there is this imminent need and the cycle is ending, homeowners should assume that tomorrow, next week and especially next year will be worse than today. If this is the case, they especially need to emotionally separate from the price that could have been and their idealized estimates on value. They must focus on the price that achieves their objectives. Especially in a market where mortgage rates are rising, prices are slowing and potentially decreasing and lenders are beginning to keep a watchful eye on approval guidelines to match the risk of the greater economy, waiting can be perilous.
Finally, homeowners need to act decisively if they want to sell. The shifting market also means that we may be seeing the end of the shooting fish in a barrel environment to which we have grown accustom. There will be less buyers. Of that, I can assure as many of my pre-approved buyers have radically different buying power. Under the worst circumstances, some are no longer qualified and less buyers means diminishing seller leverage. It will take more work to prep and stage a home. My own home took a good 6 months of steady work to prep my home and most people under-estimate the requirements for best price. With shortages of material and good contractors, this is not like ordering a pizza.
I need to especially call out divorce here because most marriage settlement agreements to have a time requirement for disposition of home. This is not usually accompanied with any type of provisions for the market. Keeping aware of the market is essential and some homeowners will be better off selling before a crash or even a correction occurs. A happy home can become an albatross if the home strains cash flow and the family budget. In these scenarios, a homeowner could be forced to sell to stay afloat regardless of whether is the best time. Not to say that this is mirroring 2008, but nobody knows how this ends and we have some issues like war and inflation that make this a tumultuous time. Divorcing sellers need to make sure that they make the best decision to ensure that they maximize their return and that the home does not drag them down. This can sometimes be counter to what feels best for the family dynamic and what the seller feels in a non-negotiable acceleration of their mental timeline. This does not even include the consideration of any minimum needed payout to buy out a spouse or to service other debt associated with the divorce. If this is the case, then the need to act decisively is amplified.
It comes down to this. While you cannot time the market, there is a better time to sell versus hold. If you have plans to sell soon, you should be consistently evaluating the market and determining the best time to meet your objectives and still maximize gain. When the market shifts, this is even more essential. As a twenty plus year veteran of the lending industry seeing some market red flags, I recommend that potential home sellers become more informed to make the right decision.
If you are thinking of listing soon, check out my recent podcast on GettingStarted.Life with our guest Realtor Julius Dickens.