As discussed earlier in this report, buying activity has slowed dramatically. But is this the result of buyer demand disappearing completely or just the result of buyers sitting on the sidelines and waiting for the right opportunity? We would argue that it is the latter.
HOW DO WE KNOW THE DEMAND IS STILL THERE?
One of the best ways to determine if buyers have headed for exits or if they are patiently sitting on the fringes would be to look at showing activity over a couple of years (see Chart A). Looking at the chart below, you can see that showing activity in 2023 has been extremely consistent with the patterns of previous years. In fact, showing activity in 2023 is actually higher than it was in 2022 and just shy of the levels from 2021. We would expect that if the buyers have decided to hold off on moving, they wouldn’t be scheduling appointments to see homes in person. These are not people browsing online for homes in their pajamas, but rather people who are scheduling to have their broker meet them at a home to visit in person.
Also, another solid indicator that buyers are present (albeit patient) would be to look at how quickly homes sell. In the main article we discussed how long homes sit on the market, but what we didn’t discuss is what portion of the homes go pending quickly. We started tracking this metric late last year when right around 25% of the homes that were going pending in Bend, did so within 7 days. Since then, we have seen a fairly steady range with 30-40% of homes in any given month going pending in less than a week. This has not fluctuated based on interest rate or stock market movements and has been consistent throughout 2023. This would indicate that buyers are educated, have been shopping, and when they see an opportunity, they act.
So what exactly will it take for buyers to re-engage and step back into the market? We think there are 3 primary triggers.
1. If interest rates drop, that will undoubtedly get those rate-sensitive buyers off the fence and back into the market. We have heard analysts predict that with every downtick in rates, we can expect an uptick in prices. Whether or not this is accurate, it helps hammer home the expectation that demand and activity will pick up when buyers see a little relief in sight. There is also an argument to be made that a rise in rates could also spark buyer activity. People have been sitting and hoping rates will fall, but if buyers see that they are about to push higher, they may opt to jump in before they get too high. This is exactly what happened in the spring of 2022.
2. For cash buyers, upward movements in the stock market usually have people feeling more anxious to make a move. When the stock market was down like it was at this time last year, nobody wanted to liquidate their holdings at a loss. However, when you take into account that the stock market is now about 20% higher than it was just last fall, this has buyers feeling more confident and eager to redeploy that cash into a historically much safer investment (real estate).
3. Whether you are a cash buyer or a financed buyer, no one wants to feel like they missed out. Lately, buyers have seen some more options on the market and unless the home is perfect, have not felt compelled to jump. Rather they sit on the sidelines watching to see if the seller lowers price and if not, wait to see if anything else comes on or goes pending. However, when something sells, it often serves as the first domino to fall with other competitive homes going pending quickly afterward as buyers try to avoid missing out completely.
We recently heard someone describe the buyer situation like this. Consider what happens when there is a big snowstorm. All brick-and mortar businesses experience a slowdown and drop in sales. When the snow clears, restaurants don’t have pent-up demand with people rushing back out to spend what they wanted to the week before. However, the situation is different for those looking to buy new phones or technology but couldn’t during the storm. They won’t skip buying the iPads and phones, they just delay the purchase until the snow clears. The current housing situation feels a lot like that and we expect the buyers to continue to head back out and purchase as their situation allows.