What Market Cycle Are We In?
What market cycle are we in and how does that impact my buying/selling decision? It’s a great question, but the answer is more complicated: Which cycle are you referring to? And what action do you plan to take based on the response? You may hear that summer is the best time to sell your property, but are you aware that many bay area residents travel internationally during the summer months and your best buyers may be out of town? How about knowing the right time to buy? There are many variables to consider that will impact timing for your purchase. I argue we constantly have two independent cycle forces in play – Seasonal forces and Climate-driven forces. I will address each, their respective nuances, and ways to maximize your goals within the cycles.
The Seasonal Cycle is the typical trend of inventory that I see on an annual basis based on the time of year. It is surprisingly consistent irrespective of outside forces.
Holidays and cold and wet weather keep the sellers away. Who wants to have buyers trampling through his or her home during this time? The garden isn’t blooming and the natural light is scarce, not to mention the puddles along the walkway. Or, maybe your new year’s resolution was to sell your home and you are taking time early in the year to prepare it. A common misconception of sellers is the belief that summer is the best time to sell and so they wait. I am not sure where this belief started, but it must have been created by the same person who said you should wait until after the Super Bowl to sell your home. In my 15 years selling real estate, I have not noticed a direct impact on market numbers in relation to the Super Bowl. I don’t think the Super Bowl is as relevant in the Silicon Valley as possibly other parts of the country and I argue it isn’t a driver for real estate, but these false beliefs are nonetheless powerful and do cause people to act one way or the other, so therefore a key component to our market.
How to capitalize on a Winter Market
The low inventory months in winter create a sense of urgency for buyers because there are so few options and they really want to buy a house. Anxiety starts setting in after not seeing new inventory for several weeks: concerns of interest rates increasing, prices rising, stiff competition and fear that the inventory will never increase. This is an opportunity for a Seller because you will have the most number of motivated buyers interested on your home at a given time – any buyer interested now will consider your home, verses later in the year when they have more options to consider and competing homes to buy. Buyers purchasing in winter typically have a reason such as they have a targeted neighborhood and available homes will always be limited in that neighborhood, or life changes which require a home purchase.
The flowers are blooming, the weather is warming and the hillsides are a lush green color. Now the homes start coming to market and there is relief that inventory will continue to rise. Sellers list their homes in the Spring for many reasons including:
1) Their home shows best with the roses in bloom
2) Their child will graduate school this year and they want to sell prior to graduation day
3) They found another home to purchase and will move accordingly.
There are many reasons to sell, but it is important to know that more homes do sell. Spring typically has the highest volume of new inventory, which means Buyers have the most selection and will often have multiple properties to consider at any given time.
How to capitalize on a Spring Market
The increased inventory creates a sense of calm in the market verses the frenzy of winter and the fear that inventory will never increase. It also brings enough new inventory to the market where Buyers will likely see multiple homes of interest at a given time. This means Sellers are now competing for prospective buyer’s interest and may not get a premium for their property when offers are diluted across homes at a given time. A savvy Buyer will be more critical to properties and pricing and consider homes that better fit their needs. The key for buyers is recognizing that the plethora of inventory does not continue indefinitely; it goes very quickly and by summer we start to see a noticeable decrease to new listings.
The below chart shows the number of listings by month and supports the seasonality of the market cycle.
Summertime is synonymous with barbecues, day activities and travel. I think summer is the most inconsistent market because you never know if the right buyers are in town at a given time. Maybe you have a unique home and a specific group of buyers have been waiting for a home like yours. If they are out of town when you come to market, you may miss the opportunity to sell for top dollar. Inventory is decent, but noticeably lower and it seems the motivation is less urgent with other family activities taking priority.
How to capitalize on a Summer Market
I think it is more difficult for a Seller to capitalize during summer because buyers change their priorities. I see international travel being a significant factor and with reasonable inventory, there seems to be less urgency for buyers. I think it is the Buyer who capitalizes in summer with the ability to be more aggressive on offers with less competition.
Families are back to their routines – vacations are over, school has started and there are no more three day weekends to look forward to until Thanksgiving. We see a good spike in inventory come September because people are back home from their summer activities and/or they’d like to sell before the holiday months. In the bay area, the weather is still beautiful and it’s a nice time to show off your house. Either way, it is a good run of new inventory before the weather starts turning. Once we get into October, there is a noticeable drop in inventory through year end and we don’t see a noticeable increase until early spring.
How to capitalize on a Fall Market
A Fall Market is a good opportunity for a seller or buyer, depending on the month and inventory at that time. Typically, we see some change in global equities markets following summer, which usually has an impact, albeit on a case-by-case basis. It is important to closely watch the market and be ready to make swift decisions. Opportunities come and go quickly and the best deals usually require quick action.
Unlike Seasonal Cycles, which occur consistently, the Climate-Driven Cycle is driven by outside forces: affordability, interest rates, stock market, employment, global and domestic politics, confidence, etc. These factors play a key role in the trajectory of the market today and forecasting for future quarters. Since this cycle is not consistent like the seasonal, it is important to understand the vast variables that may impact the conditions and how best to adapt to capitalize on it.
With interest rates higher than a year ago, people’s affordability of what they can spend has gone down. As affordability decreases, as it has been, there will be a saturation point to prices, at which time they should stagnate or decrease. This will occur because of many variables including the sentiment and confidence of buyers and sellers. It is not a date we can put on the calendar, but it is something I try to stay keenly aware of and will continue to update my clients accordingly, so that we make the best decisions possible.
The ups and downs that occur in the cycle vary in length of time and amount of adjustment. We are currently at an eight-year run of the bull market, which begs the question: how much longer will it last?
For our local real estate, we have seen growth never experienced before and a growing population of talented, young families to our established neighborhoods. Employment seems strong, albeit I am hearing signs of caution at even the largest local companies and sharing that with my clients. I argue 2017 will be the year of uncertainty from multiple angels and I am acting accordingly. Being diligent and thoughtful for each client and working through the most important details for each situation. I think one of the most telling observations for the coming spring months will be looking at the year-over-year data. With interest rates higher than a year ago (decreasing affordability), even stagnant prices will be more expensive for buyers on a monthly basis.
Seasonal Cycles and Climate-Driven Cycles are occurring concurrently and are not mutually exclusive, so when we discuss the real estate market, I address both aspects of it and how it relates to your unique situation. In such a dynamic market, it is important to
have a professional representing you that understands the intricacies and emotional driving factors of both buyers and sellers.