Back in April and May, I did a two-part series entitled “The Winds Are Changing.” In that series, I forecasted the changes that were around the corner in the real estate market. If you’d like to re-read either of those stories, you can find them here:
The Winds are Changing and The Winds are Changing “Part 2”
I thought the market would start shifting this fall, maybe as early as September. But the shift has already started, a month earlier than expected.
As some of you know, I operate my real estate team out of two offices in two states, one in Denver, Colorado, and one in Kona, Hawaii. At the end of July, I was on a conference call with my office in Denver and heard how much the market had slowed. In fact, we had put a beautiful home on the market in the beginning of July and 30 days later it was still available with no offers. This started to raise an eyebrow for me. The people on the call went on to tell me that the new home sales report had shown that new home purchases were declining rapidly. As far as re-sale properties go, fewer and fewer homes are getting full-price offers let alone an over asking price. Inventory was on the rise and homes were sitting on the market longer.
This would make sense and go hand and hand with some of the things we discussed back in April and May. At that time, we believed that as more people became vaccinated and more people were asked to come back to a physical workplace that there would be less inclination for people to sell their homes and move elsewhere. We also predicted that buyer fatigue would play a factor as prices were continuing to rise at an astronomical level. Nobody in the real estate industry believed that we could continue on a trajectory of 20% to 30% appreciation year-over-year, and in fact, the data from the Denver phone call seems to indicate that buyers are now pushing back. Stories I’m hearing from a new homebuilder office describe scenarios where the buyer walked into that sales office 12 months ago and looked at purchasing a house at $550,000. Today they’re asking $685,000 for the same house. It’s at that point the buyer pushes away from the table and says, no thank you, I’m no longer interested. That’s more than just buyer fatigue, that’s the buyer saying we’re not going to play in this market.
Why the dramatic jump in price? We have all heard the stories about the cost of materials and yes, they have been slowly coming down but not fast enough. Secondly, there’s a labor shortage and everyone knows it -from plumbers to waitresses. I have spoken to people that own a daycare center, a restaurant, and, yes, homebuilders. All of them say their number one problem is finding people to work. In fact, some people on their payroll are demanding more money and threatening to leave. These business owners are being forced to pay more salaries just to retain their current talent. In turn, the business owner then passes this added expense on to you, the consumer, and in the case above, this equates to a higher price for that home. Everyone universally agrees that the dramatic increase in home prices is a direct result of the labor shortage, the cost of materials, and the law of supply and demand. People are asking exorbitant prices for their homes, whether new or resale, for no other reason than they can. Now, that looks to be changing!
So, this should be good news for future buyers. If home sales slowdown, there will be more inventory and more choices for you on the resale market. In addition, it will slow housing appreciation, and more than likely you won’t be in a bidding war for your home. As far as new home construction goes, if the market slows down there will be more material supplied to the marketplace at a more reasonable price.
Now, we just need to solve the last problem and get more people back to work. The current White House administration should really start looking at incentives to get people back to work, instead of giving them incentives to stay home. At some point you must stop pumping free money into people’s pockets, otherwise, they will never go back to work. In addition, all the free money is causing an inflation problem. The White House administration says there is no inflation problem. However, two days after that statement the chairman of the Federal Reserve, Jerome Powell, said there is an inflation problem.
What most people don’t realize about inflation is that it is really a TAX and it’s the worst kind of tax – it spreads across all demographics. If we are all paying $100 more a month for gas, that’s essentially a new tax. If the cost of our groceries, the cost of our clothes, and the cost of our utilities continue to rise without wages keeping pace, then that is a tax on everyone in the name of inflation. I believe Chairman Powell will have no choice in the coming months but to raise interest rates to get inflation under control. This would impact mortgage interest rates and certainly slow down the real estate boom.
Join me next month when I continue with part two of this series and we look at whether or not this will affect real estate in the Hawaiian Islands and if so, when would that happen?
Dan Polimino is the owner of the Hawaii Team in Kailua Kona, Hawai`i. He and his team are the luxury residential experts for the Big Island. If you are thinking about buying or selling in
Hawai`i, then please reach out to us at team@thehawaiiteam.com or call 808-913-0899.
