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By Emilio DiSpirito, Realtor & License Partner of Engel & Völkers East Greenwich
Day 4 on the market, our 3-bed, 1-bath home listing sits, leaving an eager seller on the other end of the phone. “What can we do? Maybe hold a 2-hour open house instead of 1-hour?” They ask me with trepidation as panic sets in. A month ago, this home would have had multiple bids in less than a week.
I calmly reminded my nervous but understanding client about the in-depth discussion we had during our consultation before I took on the listing. We discussed how the market has shown a significant slowdown in the past month. We also discussed strategy, pricing, and expectations. While my client recalled our consultation, they mentioned how they still did not expect to see such a significant slowdown in such a short period of time. I completely understand that.
Let’s look at the current real estate market here in Rhode Island, dive into the numbers and review indicators for a continued slow down. But before we do, first take a deep breath, and say, “Thank God for the cooldown!” I will explain my reasoning below.
To understand the current market slowdown, we must revisit the landscape in March of 2020, which was arguably one of the worst months we all collectively experienced in the modern era. Fear, anxiety, and uncertainty circled the globe. Hundreds of homes dropped off the Rhode Island Multiple Listing Service (MLS) that month, joining hundreds of thousands of other homes across the country. In what was already the lowest inventory market on record, we lost more than half of our listings. Everyone thought the market would crash, including me.
A month later, in April 2020, the market started to boom – at least for single and multi-family homes. The condo market died on the vine due to an increase, as well as a fear of violence escalating as protests were held across the country and the pandemic surged. People no longer wanted to share communal areas as tenants pushed elevator buttons with tissues, pumped gas with disposable gloves and avoided eye contact as they peeped over their mask to hastily buy groceries – remember that?
Buyers began seeking refuge from densely populated cities such as New York City, Boston, Chicago, and Los Angeles, which led to record breaking prices in their respective metro markets. We are talking numbers that make 2005 real estate prices look pale in comparison. Meanwhile, in the Ocean State, our pricing was still very attractive and “affordable” in contrast.
At its lowest in 2020, I watched Rhode Island’s single family home inventory wither down to only 621 homes for sale statewide. Many of which were homes that no one wanted, were overpriced, or needed too much work, etc. Keep in mind, Rhode Island’s active inventory usually teeters around 4,000 to 5,000 single family homes across the 39 municipalities.
2020 was the perfect storm. As the supply of homes available for sale dwindled, the demand skyrocketed, and 30-year fixed mortgage interest rates dropped under 3 percent. Hundreds of families poured into the market for primary residences, as well as second homes. Massive Small Business Administration (SBA) loans allowed small businesses to keep their doors open, the stock market soared and there was an exodus of families moving to suburban and rural areas, as many now had the ability to work from anywhere remotely. Millennial first-time homebuyers became one of the largest sects of the population gobbling up homes, among a myriad of other reasons for this incredible boom in the real estate market.
At the time of this article, we are in late September of 2021. A solid year and half from the start of the pandemonium. The number of single-family homes in Rhode Island has doubled to 1,245. Homeowners in Little Rhody have also enjoyed an impressive 26 percent increase on pricing year-over-year, leaving them in an equity position that would take more than seven years in a traditional market!
While pricing has soared, the attractiveness due to affordability has dived tremendously for out-of-state buyers. Additionally, as life begins to return to some semblance of normalcy, people have once again found solace in their home states and have stayed put, cutting the influx of out-of-state buyers. When you also mix in the uncertainty of foreign affairs, the US economy, high gas and heating fuel prices and the highest percentage of inflation since Jimmy Carter – buyers are starting to feel less confident that “now is a good time to buy,” and lo, we have a new market upon us, a more balanced market at that.
With homes now pending roughly 37 days on average according to the Rhode Island MLS, compared to only five days on the market as we have seen up until recently, there will be spectators who say, “Emilio, it’s still a hot seller’s market!” Indeed it is – however it’s hot like the failed Rhode Island tagline, “Cooler & Warmer!”
So, let’s circle back to when we began this story with “Thank God the market is cooler than warmer!” (see what I did there?). Extremely Low inventory leaves both aspiring and current homeowners up the creek without a paddle due to a conundrum that looks like this: “We need to sell in order to buy, but there is nothing on the market, so we will not list,” or “there is nothing at all to buy, so we will continue to rent until more inventory hits.” The increased average of days that a home is listed on the market is actually a good sign that the market is correcting itself and balancing back out, instead of being too hot for homeowners to handle.
According to a Wall Street Journal Article posted on April 15, 2021, the real estate market across the US is still short by more than 4 million homes, with an absorption rate of 1.26 months of inventory. This means that if nothing else was listed over the next 1.26 months, the current inventory would be exhausted.
Anytime that homes sell in less than 5 months on average, we are in a seller’s market. Sellers need not worry that the market will turn anytime soon to a balanced or buyer’s market. However, sellers must understand that days on the market have increased and it will likely take longer to sell. This means that sellers should price their homes more competitively with the increased number of homes in the fold. They should also realize that they may not get a situation with multiple bids over-asking or where a buyer is willing to waive the appraisal, inspection or other important contingencies, like we have seen in recent past, to win offers.
Every neighborhood is its own market, and every home is unique. Take the advice of a seasoned real estate professional on the preparation, marketing and pricing when preparing to list your home for sale, for optimum results.
For help finding the best real estate agents around, reach out to The DiSpirito Team!
To read more articles in RINewsToday by Emilio, go to: https://rinewstoday.com/emilio-dispirito/
If you would have asked me what I wanted to be growing up, little Emilio would have told you “an archeologist” or “an architect” despite the fact that at age 8 I had my first lemonade stand, landscaping business and was recording my first “news show” on my boombox! Well, I never was much good at trigonometry and did could not see myself traveling for months and possibly years at a time, so becoming an architect or archaeologist clearly did not happen!
Fast forward 26 years later and I’m running a team of the finest residential real estate professionals, own a media company and host my very own radio news show about real estate!
For 7 years straight it seemed that I had put in more hours than the day had to give on my real estate business. 7 days a week, 14 to 16 hour days, without a break! Why? My friends and family did not understand the sheer magnitude of moving parts and services we offer to our clients during a transaction! One slip up or one missed call could mean make or break for someone’s dream home or even a lost deposit!
Running a team of like-minded, highly qualified and capable professionals has allowed me to offer a very streamlined, simplified and efficient approach to the sales process for our clients and allowed me to earn personal time again with my family while not missing a beat for my clients!
When I’m not working, I’m with my family, riding my mountain bike, eating at a number of local restaurants, enjoying live entertainment, hiking, skiing or reading!