Like a flock of birds changing flight abruptly and in unison, so could go the real estate market.

Fueled by low interest rates and lifestyle changes brought on by COVID, the housing market of the last two years has been a frenzy of buyers snapping up houses the moment the properties hit the market. To “win” the house, buyers often paid hundreds of thousands over the list price with some homes in California selling for more than one million dollars over the asking price.

Buyers were waiving appraisals and allowing the sellers to stay in the home rent-free for months after closing escrow. Buyers dared not ask for repairs as the seller had a pile of backup offers waiting in the wings.

One Sunday, a few months ago, I held an open house for one of my listings in Mount Helix.

The comparable sales supported a list price of $1.2M. Knowing the fervor of the market, we pushed the envelope and listed at $1.4M. Some 200 people came through the open house and at one point, in the middle of the crowd, a man loudly demanded that I “shut down” the open house for his $1.6M cash offer right there and then.

Of course, I couldn’t stop the open house and multiple bids flowed in. The sellers accepted an offer for $1.8M making it the highest selling home in Mount Helix history for a house under 3,000 square feet. This particular home was less than 2,400 s.f.

But now the wind is shifting. Though home prices are at an all-time high – the median price for a home in San Diego is an eye-popping $975,000 – signs are emerging of a cooling market. Days on market are increasing. Price reduction announcements are filling inboxes and when a home generates multiple offers, it’s not quite as many as before.

So, what’s going on? Most impactful is the rising mortgage interest rates.

The first half of 2021, saw interest rates as low as 2.68%. As of May 19, 2022, the interest rate was 5.42%. If a buyer purchased a home last year for $975,000 with 20% down, the mortgage payment (principal + interest) would have been $3,155.43. Today, that same $975,000 house with 20% down would have a mortgage payment (principal + interest) of $4,389.68 – a difference of $1,234.25.

Add economic insecurity, the recent stock market volatility, and rising inflation and it is no surprise that purchase applications fell 12% in the second week of May.

Going forward, home sellers would be wise to be a little kinder to buyers.

Hire an experienced Realtor and listen to his/her advice on pricing and prepping. This is not the time to overprice properties; put your best foot forward. Buyers: if you love a home and can comfortably afford it, buy it. One of the greatest feelings in the world is owning a home you love. Make sure to retain a Realtor who understands the market for negotiating the best terms. It’s not always about price, there are other terms that appeal to sellers that are good to know. 

Happy home selling and home buying and remember, real estate is a great investment.

– Reach Laura Lothian at: [email protected].

Photo credit: Pixabay.com