Just four months into 2022 we are seeing some significant signs of a real estate shift from the last two years. An increase in mortgage rates has made already high prices even more expensive when a loan is involved. Rarely seen during the last two years, decreases in listing price of properties are happening more often. Our seasonal slow down is back. Maybe it’s typical and summer will bring normal buyer demand again.
Shifting interest rates
As we all know, the pandemic created a frenzy in most every real estate market. It’s apparent now that a frenzy in the economy was also created. In response to that frenzy, the Federal Reserve has begun raising interest rates. While there is no direct connection between the Fed rate & mortgage rates, it does have an impact. Mortgage rates have nearly doubled in 2022. They are expected to go up even more throughout 2022. On a $500,000 mortgage, a 1% increase in interest rate will raise the monthly payment around $300. That’s significant. Buyers that thought they could afford a $500,000 mortgage at a 3% interest rate are now looking at a $375,000 mortgage at 5.5% interest. This type of payment increase could impact buyers in the market, thereby creating a real estate shift.
In the last couple of years, property prices have been increasing dramatically. The average sale price for residential properties has gone up 63% since 2019. It almost didn’t matter what price was on a home. Someone was willing to pay that much and many others were willing to offer more than that. Homes frequently sold for list price or higher. That price was almost always well above the recent sale prices of similar homes. We are seeing a shift in real estate in 2022. There are still properties selling for list price. There are still properties that get bid up above the list price. However, we are now seeing price reductions because properties aren’t selling. In the last 7 days, there have been 13 price reductions on residential properties for sale in Summit County. With 194 active listings, that is price reductions on nearly 7% of the properties for sale. While that is still a very low number, it is a shift from where we have been.
The Summit County real estate market is seasonal. We are typically busiest in the summer/fall months and slowest at the beginning of the year. The pandemic threw everything out the window. This year, however, is looking a little more typical. Year to date we have almost the exact number of residential sales we had in the first four months of 2019, pre-pandemic.
Sales in April were pretty typical. There were 122 residential sales in the entire county. That’s a decrease of 34% compared to 2021. A more meaningful comparison is to 2019, pre-pandemic, when there were 135 sales so a decrease of just 10%. 122 is an expected number of residential sales for us. Perhaps another sign that our market is normalizing. Current buyer activity is a little slower now too. May activity is looking a little more typical so far. Is this a real estate shift in progress?
A healthy market
The real estate market has been absolutely crazy these last two years; a very strong sellers’ market. A slowing market is generally a concern however, in this case, a little slowing is a welcome sight. It will take some time for inventory to build enough to turn the market away from the sellers. I, for one, am hoping for a more normal market. A normal market is a healthy market. If we can see healthy real estate markets, hopefully we can have a soft landing into a healthy economy. I am excited to see a shift in the Summit County real estate market.