As we near year end, I figured it was a pretty good time to share some experiences that should help you to understand and get a flavor of what is happening in the real estate market.  As the title suggests, there are not a preponderance of listings entering the market.   Seasonally this is not uncommon, being the holidays and all.  What is uncommon is just how quiet the market is.

Since the Fed has literally caused interest rates to double in the shortest time on record, it’s no surprise that the market is struggling to find it’s footing.  How slow is it?  I have statistics I maintain for my local market dating back to 2008 and today’s pending information does not look good.  For example, in August of 2008 there were 314 homes under contract.  In January 2009 when the market was in an absolute freefall, there were 260.  A year ago, there were 296 but today it’s just 123 [Search for Listings here].  This is anemic.  In fact the lowest December pending sales number I could find going back 14 years was 214.  When there are few homes on the market we call this a seller’s market, but when sales are as low as they are today, it’s a no one’s market.  It’s literally No Man’s Land.  Mortgage lenders are laying off anyone they can.  Appraisers are dead slow.  Escrow, title, home warranty, all dead.  For the vast majority of Realtors (remember it’s an 80/20 business), they not only don’t have any closings, they don’t have any listings nor do they have any buyers.   So what’s that mean for prices?

It’s difficult to generalize this market because we’ve quite literally never seen a market like this.  I’ve been at it going on 33 years, so I know of which I speak.  So many people are locked in to sub 4% rates – over 70% of all mortgages have rates 4% or less.  Applications for a refinanced mortgage are down 86% – that’s because the vast majority are locked into 30 year fixed at crazy low rates.  Obviously, this slows demand for purchases too.  Just ask @CNBC real estate correspondent @dianaolick, she’ll tell you. In response Sellers are dropping their prices and accepting lower offers. How much lower?

First thing you need to understand is that I am working with very few buyers at all and those who I am are almost all cash.  You read that correctly: almost all the buyers buying my listings or that I’m writing offers for, are all cash.  I had one listing just close where the buyer had 50% down, while my other listings have all cash buyers.  Back to prices… On one deal there was a comp across the street; better location by a little but the home wasn’t anywhere near as nice as mine which was recently fully renovated.  The home across the street sold for $1.3M in October.  We listed for $1.25M, well below where we would have in the spring.  We closed at $1.210M in November.  If you’re doing the math, that’s a drop of 6.7% from the very recent comp.  I recently wrote an offer for my young buyers taking financing.  We wrote 10% below ask and settled 7.5% below – and then the seller wouldn’t make repairs and the deal fell apart.  A decision those sellers will certainly regret.  Just this week I wrote an all cash offer on a home originally listed at $1.2M but reduced to $1,145,000.  We wrote at $1,045,000 and they accepted.  That’s 12% below original ask (by the way, do you think just maybe having an experienced agent who knows the numbers and is expert at negotiating is worth hiring?).  To put this in perspective, during the Great Recession when there were a gazillion properties for sale, if someone came in with an offer 10% below ask, we’d call it bottom fishing and it was virtually impossible to get the sides together to make a deal.  It’s worth noting that while I am getting offers accepted well below ask, I also wrote for the same young couple after we fell out of escrow, and that property went multiple and is currently under contract a couple thousand dollars above ask.  We did not go above ask.  “Not in this market,” I told them.  So what can we expect going forward?

As I look at the landscape of the market going forward, I have to believe there is more room to the downside on prices.  Especially if the Fed continues to raise us into a recession.  Admittedly, there is not clear consensus on this amongst my peers.  With inventory so low others will reason, it simply can’t be a buyer’s market.  This would be completely logical if… sales were even at the level of 2008 – but we are not even close to that many sales.  And what does a seller of anything do when there aren’t any buyers for their product?  They put it on sale and that is what I predict will happen in the coming months and into next year.  One last caveat… you might wonder if I am worried about the buyers I represented over the past 12-18 months?  The answer is no.  None have any intention of selling.  They paid more for the home than they might have today, but they are locked in at a generationally low interest rate.  That low rate gives them tremendous flexibility.  Their payments are less than the rent they’d be paying for the same home and they could in a pinch rent it and probably come very close to positive cash flow.

As this is the holiday season and my article is fairly Grinch heavy, let me leave you with 2 final sugar and spice thoughts on this idea that people might be upside down even though they only just bought.  The first is that you only lose money in real estate if you sell for less than you paid.  That may sound stupidly obvious, but the simple answer is, don’t sell.  And the second which is directly correlated is this: you don’t wait to buy real estate, you buy real estate and wait [Find out the value of your home].  There is zero doubt in my mind that in 10 years, people will look back at 3-4% interest rates and ask themselves, why didn’t I buy more?