Market Shifts – Is There One Coming?

Where we have been – the Seller’s Market

For the longest time, we have been in a ‘Seller’s Market’ resulting from historically low inventories. The problem with low inventory began when the market plummeted leaving so many homeowners with diminished equity and thus, an inability to sell. Short Sale programs were successful in helping some homeowners move in the down market, but many chose to stay put and postpone any thought of selling.

Months of Supply

This chart shows the Greater Tampa area months of supply for the past six years. A healthy and balanced market should have between 5 and 7 months of inventory. As this chart shows, the Greater Tampa area has had less than 4 months of inventory (mostly less than 3 months) for a very long time. 

Unemployment and Growth

When markets lack supply, there is an increase in demand. In the Greater Tampa area, demand has continued to rise mostly due to the decline in unemployment. 

And, as reported by Joel Kotkin, contributor at Forbes Magazine, in his article, The Best Cities for Jobs 2018 , Tampa ranks 20th in the nation for jobs. According to the United States Census Bureau, Pasco county growth estimates between April 2010 and July 2017 showed an increase in the population of 60,946. And Hillsborough county on track for an increase in the population of 179,430.

Where we are going – the Buyer’s Market

We know that jobs create growth and, in turn, create demand. But what could possibly happen that would decrease demand? The answer: the decrease of a consumer’s buying power as a result of rising interest rates. 



Interest Rates

According to Freddie Mac and their report on 30-year Fixed Rate Mortgages since 1971 interest rates in 2007 were at an annual average of 6.34%. 2007 was the year that mortgage interest rates began their historical fall to as low as an annual average of only 3.66% in 2012 – a whopping 2.68% drop in mortgage interest rates in just five years.

As of May 2018 the going rate, according to Freddie Mac is up to 4.59% and climbing. 

Interest Rates and Buying Power

I like the article published by Shamrock Financial Corporation, How a 1% increase in interest rate affects your home purchasing power. This article was published in August of 2015 but the message is timeless. Imagine being pre-approved for a loan in the amount of $245,000 (interest rate of 4.5%) and before you find your new dream home – rates rise to 5.5%, now your approval amount is reduced to $219,000! That is an 11% reduction in your buying power!

The Shift

As interest rates rise, buyers become discouraged. For those buyers who are new to the market (First Time Home Buyers), they struggle with the remnants of the ‘Seller’s Market’ (inflated prices) while they absorb the impact of high-cost loans. Inflated prices along with high-interest rates coupled with reduced buying power = Less Demand. 

People who currently own their home had likely refinanced when interest rates were at their lowest. These homeowners will be reluctant to trade their low-interest rates for a higher rate on a new purchase. = Less Demand.

Once demand has decreased, inventory will begin to grow with higher days on market = Shift. 

As inventory grows, and supply exceeds demand, values will begin to fall. = Buyer’s Market

Market Shift

With a market shift likely on the horizon, it is important to analyze your current situation and decide if you need to make ‘the move’ now. If rates are most likely to rise – you should buy now. If inventory is likely to grow – you should sell now. If you are a homeowner who is currently on the market, pay close attention to your competition and be competitive in your pricing. Don’t get stuck chasing the market ‘down’ with small incremental price reductions.

Financial Calculators

About Toni Hedstrom

I am one half of Hedstrom & Stamm Home Solutions, a dynamic real estate team with emphasis on home marketing utilizing our exclusive Home Ready Program.