Crazy Hot Market For Sellers, When Will It Shift?

Saturday, April 14, 2018   /   by Bryan Arnold

Crazy Hot Market For Sellers, When Will It Shift?

Why is the market the hottest it's ever been in Indianapolis/Surrounding Counties? The simple answer is lack of inventory. Typically, a healthy market in the Indianapolis area has roughly 15,000 homes on the market at any given time. In October of 2017, there were about 12,000 homes. Right now, there about 5,100 homes, and the market has been that way since mid-January.

Scarcity drives price, and the <$250,000 is where there is less than a week's worth inventory on the market in some areas. There are several reasons for the shortage:

-Cost of labor, land and materials (especially because of the Caribbean, Texas, and Florida hurricanes in 2017) have driven up the price of building. Buyer's tastes have also increased to wanting hardwood, granite, etc. This has put the price of building above the $150,000 price point in most cases.

-Home Ownership rates are historically low. We have finally started increasing from the all time low of 62% in 2016 after 11 straight years of decreased home ownership. Right now, the US home ownership rates are is about 64.5%, which is still below the average over the last 50 years and far below the high in 2005 of 69%.

-Interest rates are still historically low.

-First time home buyer's, mostly Millennial, are no longer buying lower end starter homes. The average age of a first time home buyer has increased to the mid 30's, and they are more affluent than every before. With home ownership on the rise, Millennials are coming into the market and skipping the starter home. They are buying all the homes from people that would be upgrading or moving up for more space. Since pre-existing home owners cannot typically afford two mortgages, they are deciding to stay put because the market is too hard for contingent offers (offers made with the contingency of having to sell their current home). These potential move-ups staying put are causing the market to be even more stressed with less inventory.

So what does this all mean? These factors combined make it the best time ever to sell. The market has seen 8 straight years of growth in sale prices. My assessment is that we are close to the height of the market if we aren't already there yet. The shift is coming, and when the market shifts, it will happen in the blink of an eye.

The majority of the people in the industry thought maybe interest rates would hit 5% by the end of the year...we just hit that number this week. Historically, that is still very low, but there are several more potential increases this year especially with a new Federal Reserve Chairman being appointed. Millennials have grown accustomed to the 3.75% and 4.0% rates. Will an increase to 5.5% or 6.0% knock out buyers that were on the border of being approved? If so, will this then allow for the potential move-up/upgrade people to finally buy and put their home on the market? I have 40-50 people in my pipeline that can't find anywhere to move-up, that number grows daily. I haven't talked to a realtor that hasn't said the same thing. When those move-ups are unafraid because they can finally find something without being rushed into one of the biggest decisions of their life, the supply is going to increase dramatically and quickly. We will then shift to a more balanced/buyer's market essentially overnight. I see this chain reaction coming within the next year. 

What are your thoughts?