Happy August! In the blink of an eye, the summer break is almost over. Kids are getting ready to go back to school. Usually with the coming of August, our local real estate market activity begins to cool a bit. This is seasonal and expected. Most sellers and buyers complete their relocation during the summer time. It has been a busy summer. Our team helped many families and individuals buy, sell, upsize, downsize, or simply relocate to a different part of town.
“How is the market doing?” is the most common question. The market is healthy and stable, in that it is showing some signs of reaching a plateau. I will share some observations in our brokerage.
- We are seeing more appraisal shortfalls. In a low inventory environment, the low supply and high demand tend to drive up prices. Some buyers are willing to pay higher than market prices, as established by comparable sales (what similar homes in the area have sold for recently). However, mortgage lenders are not caught up in this frenzy and want to properly assess their risk in making the loans based on these homes as collaterals. This is where appraisals come in. Appraisers are trained and licensed professionals who specialize in assessing real estate value. Even though their fees are paid by home buyers, they really work for the banks. The banks will not make home loans above appraised values. By design, this provides a breaking effect in a heated market. Value increase happens gradually, in a stair-step fashion. Each slightly higher sale provides the basis for the next sale to be also slightly higher. Comparable sales tend to be orderly without big gaps and jumps in value. For this reason, experienced agents always talk about “comps”. From studying the comps, we can see the dynamics of buyer and seller interactions, and we can also see what comps a future appraiser will work with.
- Prices are not all going up. Despite what everyone hears on the news, the central Florida real estate value is not constantly increasing. Other than what I’ve been describing for 2 years, that there are different market behaviors in different price ranges, many neighborhoods have stagnated in the last 12 months without a price breakout. Some neighborhoods are showing signs of fatigue and have actually decreased in sequential sale prices. When you are trying to make informed decisions about real estate, be sure to talk to us about local comps, not overall market averages.
- There are more financing difficulties. This is when a home is under contract, and the buyer experiences difficulty in obtaining final loan approval. Keep in mind, these are all “pre-approved” buyers who have passed preliminary scrutiny. We have seen more cases of buyers having to switch loan types, switch lenders, and otherwise struggle to obtain the loan to complete the purchase. One interpretation is that there are more “marginal” buyers out now. This may also suggest a market plateau.
With these said, please understand our market remains healthy. We are not in a real estate bubble. A market stable in value is healthy. We simply have to get over the bad habit of expecting double digit value increases. Many of the contributing factors of the 2004-2006 bubble have been corrected. For example, the mortgage industry is more accountable for the loans they originate. Mortgage loans are made to buyers that can really afford the payments. The appraisal process is independent and not subject to artificial inflation of value that cause price swings. These contribute to our current strong foundation in real estate ownership and value.
We believe in the value of real estate ownership both professionally and personally. We are active participants of this market in the buying and selling of or own properties. We hope you will count on us as advisors when it’s the right time for you to buy or sell a home.