Upcoming Change in the Market

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coming to a decision point

One of the founders of Keller Williams Realty, Gary Keller, gave a speech in August and stated that he foresees a change in the market within the next 18 months. He presented a lot of information and charts to show why he sees a change coming and it makes a lot of sense. He did not say this change would be dramatic like the one we saw in 2006 so don’t panic.

From what I’ve seen over the last 13 years in Tampa Bay real estate I’d have to say I agree with him that we should see a change in the next 12-18 months. There is always the possibility of some national or world event that would cause a dramatic effect on the housing market overall, but hopefully we won’t have that happen. However, even with no major economic or societal event there will likely be changes in our local real estate market in 2017-2018.

What Kind of Changes?

For the past few years we have seen strong sales and price appreciation driven but strong demand and a shortage of inventory. We are also seeing prices in some areas reaching a point where they are either less affordable or less desireable for buyers which brings about some decrease in sales and, in some cases, prices in those specific areas or for those specific properties.

The strongest demand and fastest sales are in the entry-level properties – those properties that young couples or seniors can more easily afford. Prices for those properties have gone up quite a bit since 2013 but they are still in an affordable range. However, there are fewer of them available and there is more competition so they can be more difficult for buyers to get.

At the same time, the luxury level of the market is slowing. Less demand and prices that climbed a little too high have created a soft market at the luxury level where there is more inventory, longer times required to sell and more frequent price reductions needed.

While all of this has been going on we have the ‘drama’ of what will happen with interest rates. There is no doubt that interest rates will begin rising again but it appears that it will take longer to happen and will occur more slowly than had been expected. The next increase should happen sometime in December and will probably only be a 1/4 percent increase. Rather than slow the market down it will probably increase demand – buyers who have been procrastinating typically get into action when a rate increase occurs because they now realize they could face even higher interest rates if they keep waiting.

So we will probably have a strong Spring buying season this next year. But if the interest rates are raised more regularly then what will happen is the now much higher home prices will no longer appear to be as ‘affordable’ as they currently are with historically low interest rates. When that starts to happen we will definitely see a slowing in the market and will also most likely start seeing more prices flatten out and in some areas start decreasing. It won’t necessarily have to be anything dramatic but it will definitely start to happen. It may happen over a period of months or a period of years.

Once that begins we will have a better idea of where things may go from there.

What to Watch For

What should you be watching for is the interest rate increases – how much and how often – and the sales, price and inventory trends in the local market. You can hear on the news about the national market but what’s important for you is what is happening in your local market because that is really what will affect you.

I provide graphs each month to show what occurred last month in the market but also to show you what the trends are and when there is any change in them. Statistics will vary from month to month but what will normally let you know that a change is coming is when you see a break in a trend. And I mean a real break, not just a 1 or 2 month blip like we have seen from time to time over the past few years.

So pay attention to the graphs more than what you hear on the news and watch for the interest rate increases and any definite changes in the statistic trends.

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