The fact is that homes might not be overpriced, just pricey.
Have you been out looking to purchase a home? You may have seen several and thought that they were overpriced. Are they really? It’s no secret that the housing market went crazy in the wake of COVID. Between the crazy-low interest rates and high buyer demand, prices shot sky-high. Now that the post-COVID market has started to normalize, I’m seeing more and more people commenting that certain houses are overpriced. Let’s break that down.
The first thing we have to consider is inflation. With skyrocketing inflation, prices for everything have increased dramatically. When you look at even the cost of essential goods, like eggs, would you also say that they are overpriced? Would you stop buying eggs? While some might, the reality is that people are still buying even in this market.
It’s a fact that prices have stabilized, and the number of home sales has declined. This is because affordability was dramatically affected by the doubling of interest rates over the last year. This has made the monthly payment on an average home several hundred dollars more expensive. In the eyes of the purchaser, this makes the home overpriced because of that increased cost. Is it really?
Probably not. The simple truth is that Realtors continue to look at the same recent comps they always have when deciding on pricing strategies. Even with the doubling of mortgage rates, prices are still modestly increasing, and if a current comp shows a home has sold for a given price, then that price would be in a fair range for a similar house in the same area.
In order for buyer demand to have a significant impact on home prices, it would have to be dramatically more intense. Just like in the example of eggs, there aren’t enough people not buying to cause prices to fall or even stall. While some buyers have left or been priced out of the market, there hasn’t been enough large-scale consumer pullback to have a negative impact on prices. For every one house sitting on the market, there are several going under contract.
The good news is that inflationary pressure is decreasing, which has meant that mortgage rates are declining somewhat. If that trend continues, it would be good for real estate in general. That said, don’t expect interest rates to return to the 3% range anytime soon. We should put that out of memory.
So is that home that you’ve been looking at overpriced? It might be. There are still overpriced homes on the market. But it might just be the perceptions of the consumer that make it seem so. If you have a question about the value of a specific property, even your own, please call or email me. I am always happy to help with all of your real estate needs.