HEADLINE HYPE VS. REALITY
Recent headlines may suggest a concerning trend with phrases like “price drops” and “highest level in 18 months.” However, it’s crucial to understand the real dynamics at play in the housing market and review actual data. Remember that headlines are often crafted to garner an emotional response, and fear and uncertainty seem to be the aim.
A recent article from Redfin notes, “Price Drops Hit Highest Level in 18 Months As High Rates Dampen Buyer Demand.” And that might make you think prices are declining.
Now, while it’s true the latest report from Realtor.com also shows 16.6% of homes on the market had price reductions in May, which is up from 12.7% last May, that doesn’t mean overall home prices are falling. A careful look at the current market in Rhode Island shows me that of the 1,022 single-family homes that are available, 10% have had price reductions (as of July 30, 2024). It’s important to understand that this pattern is common every July due to seasonality in real estate as people go on vacation and enjoy the summer. Before pausing your search over fears of a “market crash,” let’s dive deeper into understanding market trends.
Home Prices: The Real Story
Despite what headlines might suggest, home prices are actually higher than they were a year ago. While they’re expected to continue rising, the pace has slowed down. Please review my blog post from last week What’s Happening In Rhode Island where I highlight the median sale price–which continues to go up in our local market.
Asking Price vs. Sold Price
- Asking Price: The amount a seller hopes to get. Sellers may adjust this if buyers, facing high mortgage rates, aren’t willing to pay the initial price.
- Sold Price: The final price a buyer pays. Despite more price reductions, sold prices are still rising.
Today’s buyers are savvy, and they aren’t willing to pay a premium for a home because their budgets are strained by higher mortgage rates. Especially homes that may need work. That means that sellers need to adjust. And that’s what’s happening right now.
If a seller isn’t getting much foot traffic, you may see them revise the price and make an adjustment to reignite interest in the home – and sometimes that’s because they’ve overpriced it from the start. That’s where price reductions come in, and when you see “price drops” in a headline, it sounds like declining home prices.
Market Dynamics
- Price Reductions: According to Realtor.com, 16.6% of homes had price cuts in May, up from 12.7% last year. This indicates market normalization, not falling home values.
- Sold Prices: Over the last year, home prices have risen by 6.6% nationally, with growth expected to continue over the next five years.
So, while seller price reductions are often a leading indicator that prices may moderate in the months ahead, which experts have been saying for a while is expected to happen, they aren’t necessarily reason for alarm.
And with inventory as tight as it is today, price moderation is much more likely in upcoming months than price declines.
Rhode Island Market Insights
Let’s look at a comparison of Rhode Island’s inventory changes since 2008. Our market is unique, marked by a significant shortage in housing inventory:
- Single Family Homes:
- July 2008: 7,820
- July 2020: 3,376
- July 2024: 1,385
- All Properties (condos, single family, multi):
- July 2008: 11,945
- July 2020: 4,929
- July 2024: 1,968
This tight inventory continues to push prices up, contrary to the national trend of increasing inventory. Seasonal slowdowns, like those in July and August, might suggest a cooling market, but the data tells a different story for now. It will take a few more months to see if a pattern is established.
How Does This Impact You?
- For Buyers: Stabilizing prices and inventory that is sitting a bit longer on the market may create an environment of better opportunities to secure homes with prices and terms that are more favorable. Instead of competing with 10 buyers for the same house we may only be competing with two or three. Or perhaps those homes that are overpriced will present an opportunity where you don’t have to compete with another buyer.
- For Sellers: Setting realistic prices from the start can lead to quicker sales and smoother transactions. And it’s more important than ever that you address cosmetic needs and finish projects. Check out my Home Seller Rescue YouTube channel for videos on this topic and to help you prioritize what projects to address versus those that won’t net you a higher return.
Bottom Line
The rise in price reductions reflects a market adjusting to current conditions, not a decline in home values. Both buyers and sellers can benefit from understanding these trends and making informed decisions with the help of an experienced Realtor, like me! Want a more detailed report on a specific neighborhood or town—reach out!