If you happened to catch last week’s blog post, Real Estate Market Update for August, you will recall that I talked about the real estate market showing signs of a shift, but what exactly is a shift? What does that mean?

I’ve had a few people reach out to me this past week asking for clarification on what a shift means. Does it mean the market is slowing? Should I wait to buy a home? Is now a good time to sell? Are home prices likely to fall?

Those are all great questions so I thought it would be a good idea to dive a little deeper this week and explain what I expect to see in a market shift and how that impacts you if you’re considering buying or selling a home in the coming months.

What Does a Market Shift Mean?

A shift in the real estate market means that it's transitioning from one state to another. It's starting to change would be a better way of saying it. We all know that the real estate market has been red hot most of this year and created challenging conditions.

It’s been especially difficult for buyers. Intense competition, multiple offers, and bidding wars have become the norm. For sellers, it's been a matter of trying to time the market. On the one hand, sellers are trying to maximize their sales price and don’t want to sell too early in a market that’s continuing to appreciate, while on the other hand if they do sell, where are they going to go? That's a question many sellers have.

if they're planning on moving to a lower-priced home, then waiting hasn't, and won’t, hurt them. If they're moving up to a more expensive home, as the market continues to appreciate, the larger the gap between the home they’re selling and the one they’re buying becomes.

So what type of shift was I talking about? Conditions over the past several months have heavily favored sellers and there are signs appearing we are going to see more balance in the market. The reason we will see more balance is that more inventory is starting to come on the market. Not having enough inventory, enough new listings, has been the biggest problem and is what has been driving home prices.

Resale homes are what we've been lacking. The new home builders can't build homes any faster. They're working flat out. As a matter of fact, the new home builders are having to put caps on the number of homes they sell so that you're not signing a contract for a home that can’t be delivered for18 months. That's not good for anyone.

Although there are signs of a shift, please don’t assume you’re going to see anything change immediately. While the number of new listings continues to increase, total inventory remains well below year-ago levels. Here’s a look at year-over-year housing inventory in June 2021 compared to June 2020:

The deeper the shade of red, the larger the decline in year-over-year housing inventory. As you can see, almost the entire country is red. In the two states where my team operates, California and Texas, year-over-year inventory is down 33.5% and 50.5% respectively.

By comparison, here is the same graph for July 201 compared to July 2020:

Compared to June, there is a lot less red and a lot more orange, indicating the difference in year-over-year inventory is not as severe. California is now down 18.1% and Texas 39.3% year-over-year. While conditions are improving, we still have a long way to go.

As mentioned above, new construction is having the same inventory challenges as resale homes. David Auld, CEO of D.R. Horton recently said:

Moving Forward

While conditions are improving, uncertainty remains and new challenges could appear due to the increase in the number of new Covid cases. Covid drove many would-be sellers out of the market a year ago and could very well do so again if infection rates rise dramatically. The impact on the real estate market could be falling inventory levels and, assuming buyer demand stays strong, further price increases as Realtor.com recently pointed out:

Bottom Line

Assuming inventory continues to return the market should continue to move towards more balance. Does that mean the market is slowing down? I don’t think we will see any declines in the total number of homes sold, but we will see fewer multiple offer situations and the pace of appreciation will also slow to more historical levels. How soon you see these changes will vary from market to market.

As I mentioned a couple of weeks ago, the latest survey of leading economists and industry experts is forecasting home price appreciation to continue through 2026.

I know this isn’t good news for the buyers hoping home prices will fall in the coming year, and while that might happen in a few markets, it isn’t expected across the board, especially in markets where a lot of corporations are relocating and bringing higher-paying jobs with them.

My goal in sharing this information with you is simply to provide the facts and data that enable you to be able to make the best decision for you and your family.

If you have a specific situation or circumstance you would like to discuss in more detail, please schedule a call with me and I’d be happy to discuss it with you.