With Terry Story, a 30-year veteran with Keller Williams located in Boca Raton, FL
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Steve spoke with Terry Story, a 30-year veteran at Keller Williams. In this installment of the weekly Real Estate Roundup, Steve spoke with Terry about the current state of the real estate market. Home sales are down; therefore, prices are down, likely as a result of rising interest rates. Terry did discover a new trend: homes are selling and depleting the inventory of available properties, with no new homes to replace them.
The Issue Of Inventory
Over the last few months, the market has been softening—clearly, a downward trend. Sales dropped, so prices dropped. A big part of this was caused by an uptick in interest rates which are dropping as well. But a second look reveals that inventory is quickly becoming scarce.
In December of 2018, around 2,800 homes were for sale in Boca Raton. Today, there are only about 2,300. Terry sold 536 homes in June, about 25% of the homes her company regularly sells each month. What does this mean? It means that the inventory is dropping, but not being replaced. But why? It could be related to the typical seasonal drop. Many families are relocating, preparing for school and the fall.
Corporate Buyers And Price Watching
An issue addressed during last week’s talk is still very much affecting the market. Major investment companies are coming into the market and, because of their financial strength, they’re buying up homes with cash because they can. Families and individuals can’t compete.
The real struggle is price and value. Selling homes in the low millions has been a struggle. However, a home recently put on the market for $1. 95 million got multiple offers and sold for full price in cash.
Understanding The Buyer’s Market
People have to understand that the market is cyclical and prices change frequently. Just like the stock market, you have to watch price and appreciate the value of the home you’re getting. We’re actually looking at three-month cycles with prices. Buyers need to pay attention to the changes and jump on homes that are undervalued in terms of price.
The market is hot, but it’s not necessarily fun. Buyers have fewer and fewer choices. That’s why watching for price changes is so important: you want to get a good deal for the money you’re spending.
Sellers also need to be more realistic. They can’t just put a house on the market at whatever price they want and think the home will sell. They need to watch the market cycles and price the home competitively.
Why Inventory Is Low
There are three reasons why inventory seems to be low. One is rate lock. Another is when consumer confidence in the market may be waning. The final reason is something that was also discussed last week: aging in place, older people who are simply choosing to stay in their current home rather than downsizing or moving into a retirement community.
When it comes to rate lock, we’re talking about people who locked in a very low rate when they bought their home a few years ago. Now, when rates are higher, those people aren’t so sure that they want to sell their home and lose the great deal they have on interest rates by having to take on a new mortgage at higher rates.
If you’d like to learn more about buying or selling a home, check out Keller Williams!
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 30-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: Over the last few weeks and months we’ve been talking about how real estate seems to be softening a little bit, but I think you’re noticing a new trend.
Terry Story: Yeah. You know, I look at the numbers and study them all the time, Steve, and we can see clearly a couple of months ago, we can see on a graph the trend going downward, right?
Steve Pomeranz: Now what is this trend you’re talking about? Sales?
Terry Story: Sales.
Steve Pomeranz: Prices?
Terry Story: Sales, and when sales go down, prices go down, so-
Steve Pomeranz: Sure.
Terry Story: So anyway, we start seeing the numbers go down. We did have an uptick in interest rates that contributed to that.
Steve Pomeranz: Right.
Terry Story: So now and, and we see the numbers when we look behind us, right? So it’s been a little bit of time. I know it feels like it’s a very hot, hot market. Inventory is low. It’s hard to get listings right now and all of a sudden, I realize, Whoa, I’ve looked at the numbers again. Inventory is definitely down.
Steve Pomeranz: Yes.
Terry Story: I think in December we had 2,800 homes. To give you an example, in Boca Raton there were 2,800 homes for sale. Right now, we have 2300 homes for sale.
Steve Pomeranz: Okay.
Terry Story: Last month we sold 536, so that’s about 25% of the homes sell each month.
Steve Pomeranz: Yeah.
Terry Story: So our absorption rate is under, it indicates that it’s very much still a buyer’s mark. Ah, excuse me, a seller’s market.
Steve Pomeranz: I mean it seems to me out of 2300 listed, if 500 sell, that’s a lot of sales.
Terry Story: Yeah.
Steve Pomeranz: For me, I mean it seems like a lot.
Terry Story: It seems like a lot. It is. It’s 2,500, you know somewhere close-
Steve Pomeranz: But it’s reducing the inventory and that inventory is not being replenished.
Terry Story: Yeah. Right. So our inventory levels are down where it was rising, rising, rising, rising, rising, rising just a few months ago. Now we’re seeing it going down, down. I don’t know if it’s seasonal because it is, this is spring and these numbers-
Steve Pomeranz: Oh, so maybe they’re starting to think about the fall now?
Terry Story: Right. Well, and these numbers are based on single-family homes. It doesn’t factor in the condos. So it could very well be an indication. Well, it’s that time of year where people are making moves to get in for the school year. A lot of relocation.
Steve Pomeranz: Sure.
Terry Story: But it is, it is hot.
Steve Pomeranz: Okay, so are prices rising commensurately?
Terry Story: I’m seeing some prices, I’m scratching my head a little bit saying, “Hmm, I don’t think it’s really worth this, but people are willing to pay it.”
Steve Pomeranz: I’ve been reading articles where they say, if you’re going to bid on a house…I remember last time we spoke, we were talking about investor interest in these kinds of properties. Big companies coming in, putting cash down, no contingencies, making it very hard for, especially the smaller, the financial buyer to come in and to compete with this because you normally, especially if you’re, let’s say you’re starting, you’re starting out, you need to have a mortgage. You’re putting three percent down. There’s contingencies. I mean, when you’re competing against an institutional buyer that’s got nothing but cash, it’s hard. It’s hard to succeed. The bottom line here though is some of the advice is just bid high and keep bidding higher. Be aggressive and bid over what the asking price is and do what you can to kind of stand out against this difficult competition.
Terry Story: You know, I had, I had a couple of homes over a million dollars in the low million dollars this past couple of months and I struggle getting them sold.
Steve Pomeranz: Okay.
Terry Story: I just put one on the market last week at a million ninety-five. I got multiple offers and sold it for full price cash. So you can see this shift.
Steve Pomeranz: Yeah.
Terry Story: Just in the last couple of months because people have to realize the market is cyclical and you have to price watch it. It changes daily. Like the stock market.
Steve Pomeranz: Yeah, yeah, yeah. So you don’t want to be caught up in last month’s numbers so much. I mean the trends, they don’t spike daily. The trends don’t go, but, but you can start to see the trend turn.
Terry Story: Right, we look for the turns, and to create a trend, it takes three months.
Steve Pomeranz: Yeah.
Terry Story: So we’re looking for three-month trends.
Steve Pomeranz: Anyway. The bottom line in what you’re saying—and this is, I think, the gist of it—is that inventory is low, it’s a hot market.
Terry Story: It’s a hot market right now assuming-
Steve Pomeranz: But it’s not a fun market. I mean, if I was a buyer-
Terry Story: It’s not fun.
Steve Pomeranz: It’s not fun.
Terry Story: No, there’s no fun in this that you have very few choices. Keep in mind only 20, 25% of the inventory is selling. Well, why is that? I can tell you the demand is stronger than that.
Steve Pomeranz: Okay.
Terry Story: It’s because it can’t, well, they can’t find the right house. We just dealt with somebody who’s made two other offers on two other properties because he doesn’t see the value and you know, I can’t necessarily blame them.
Steve Pomeranz: Yeah.
Terry Story: The sellers, some of the sellers are just a little unrealistic. So a lot of that 80% are unrealistic sellers. Not all of them. Don’t get me wrong, but a lot of sellers need to be realistic as to what the market is because this is not a situation you throw the house at whatever price you want and think that you’re going to sell it.
Steve Pomeranz: I know. So there’s some discrepancies here when you say it’s a hot market because that doesn’t sound like a hot market. I mean if you can, I guess you can still be overpriced in any market. So that’s number one.
Terry Story: Right.
Steve Pomeranz: So I don’t know, you know exactly what would be considered fair value of a particular home. You look at the comps and so when you get a sense of what this home should go for in a particular area, and if someone is 20% above that, is that way out of the market? Or maybe they’re just, they’re not in a hurry and maybe they think the market will come to them.
Terry Story: Right, right. There are some sellers that believe that.
Steve Pomeranz: Yeah. Yeah. All right. So the reason that inventory is so low, and here’s a new term that I learned. There’s three reasons given. One is something called rate lock. Another was if consumer confidence starts to wane.
Terry Story: Right.
Steve Pomeranz: And another is an older generation choosing to age in place, which we talked about recently, and so we went through all that. But this idea of rate lock. Now when I think of rate lock as a consumer, I think of, well, I’m getting a mortgage and they said, well, they lock in that rate cause if rates go up, you’re still locked in. That’s not what this is. Tell us what this is.
Terry Story: So basically, what it is is older generations even, I don’t know anyone who bought five years ago.
Steve Pomeranz: Five, seven, 10 years ago.
Terry Story: Right, five, seven, 10 years ago. Shoot, they were, we went as low in the two percent if you remember that.
Steve Pomeranz: Yeah, I didn’t hit that.
Terry Story: Yeah, I never hit it.
Steve Pomeranz: Low threes, let’s say.
Terry Story: Let’s say low three’s but, yeah, it actually dipped.
Steve Pomeranz: That’s a 30-year mortgage.
Terry Story: 30-year mortgage.
Steve Pomeranz: At three and a quarter percent.
Terry Story: Correct.
Steve Pomeranz: At zero points or something.
Terry Story: So these folks are older people, are locked in at that. That’s the rate lock we’re referring to.
Steve Pomeranz: Yeah.
Terry Story: So now you know the interest rates are up maybe one percent, one and a half percent. Is it worth dumping their house-
Steve Pomeranz: Well, that’s the thing.
Terry Story: That they’re in to go get something else.
Steve Pomeranz: So now you’re going into a four and a quarter. Four and a half. So I mean you’d have to be pretty motivated. I think that’s the key.
Terry Story: But listen to us, four and a half percent? Did you ever buy when it was 18%, Steve?
Steve Pomeranz: No, I couldn’t afford anything when it was at 18%. But no, you’re absolutely right. Think about how much house you can buy today at four and a quarter or four that you could buy that you couldn’t buy when rates were at eight percent.
Terry Story: Right?
Steve Pomeranz: Right, you can buy twice the house.
Terry Story: My first house was right under eight percent.
Steve Pomeranz: I know me too, of course. So you can only afford X house, but now with four percent you can double it.
Terry Story: Double it.
Steve Pomeranz: Simple math, right?
Terry Story: Dang.
Steve Pomeranz: Yeah, okay. Oh, by the way, that’s what drives this concept that low-interest rates drive up asset prices, and it’s the same for stocks, but we’ve got to end it there. My guest as always is Terry story, a 30-year veteran with Keller Williams located in Boca Raton, Florida, and she can be found at terrystory.com thanks, Terry.
Terry Story: Thanks for having me, Steve.
