A transition in the residential real estate market got well under way during the second quarter, and it appears to many real estate agents that the shift is likely to be both significant and long-lasting.
Sellers, buyers and agents all need to modify their expectations as they learn about this new market.
The immediate cause of the rapid cooldown in the market, of course, was the decision by the Federal Reserve to begin raising interest rates. Mortgage interest rates today are running a bit over 6.5 percent, compared with about 5 percent just 90 days ago. At the start of 2022, before the Fed started tightening, rates were bumping along at record lows of about 3 percent.
Rates have an immediate impact on buyers’ ability to purchase homes. At the current 6.5 percent, a typical monthly payment is about $500 higher on a median-priced home in the Reno-Sparks area than it was in March. And the payment is $1,000 higher than it would have been in January.
With fewer buyers able to afford the increased interest rates — especially when the effects of rates are combined with higher home prices — inventories of homes for sale began to rise. At the end of the second quarter, the Multiple Listing Service reported nearly 1,300 homes on the market in Reno, Sparks and Fernley. That’s nearly triple the inventory at the start of the quarter.
Not surprisingly, greater supplies of housing on the market meant that prices began to cool. In June, the median price of $580,000 in Reno, Sparks and Fernley was 16 percent higher than a year ago. That’s a big jump, but it’s substantially below the year-over-year increases of 20 percent or more that we experienced during recent months.
Anecdotally, members of the Reno-Sparks Association of Realtors say bidding wars have almost disappeared, buyers no longer feel rushed into making an immediate decision and sellers increasingly are open to concessions such as providing assistance with closing costs to buyers.
The cooling market comes as a shock to some sellers who’d heard stories from friends whose homes were on the market only a few days before they were snapped up. Not long ago, homes in the region were on the market only an average of five days before they were under contract. (And like any average, that one conceals the fact that some homes were under contract within a day or two.) Today, the average time on market is closer to three weeks.
Nor can sellers expect that they will simply name a price, then watch as buyers battle to drive the asking price even higher. During this time of transition, sellers are learning the importance of associating themselves with an agent who can help them set a realistic asking price and then help them negotiate both price and conditions for the best possible outcome.
Buyers, meanwhile, are learning to make more measured decisions as they have greater time to think about the home they really want, not just what’s available for a few fleeting hours. They’re not rushed into making the investment that’s the largest most of them will ever make, an investment that’s the cornerstone of building family wealth. Agents are adjusting their relationships with buyers to reflect these new realities.
Northern Nevada experienced a decade-long residential real estate market in which buyers held the upper hand, and everyone grew accustomed to double-digit price increases each year. Now we’re returning to a more normal market, one in which the interests of buyers and sellers are balanced, and prices climb at rates that are closer to historical norms.
The great transition clearly has begun.
Sarah Scattini, an associate with RE/MAX Premier Properties, is president of the Reno/Sparks Association of Realtors.