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Interest rates are starting to move, so the question on everyone’s mind is, “What will this do to the real estate market?” Let’s go over this…

In May we were firmly in a balanced market. The bump from earlier in spring has come down because more people are listing their homes for sale, giving buyers many more options than earlier. May home sales came in at 7,013 (a 21% decline from last May) and new listings came in 18,612 or equivalent to 2.7 months of inventory. This is moving us closer to 3 months of inventory which is smack dab in the middle of a balanced market. So in the short term, we can expect buyers to have many options and lots of negotiating power.

In the medium term, we’re going to see layers of buyers return. Now that rates have started to come down in both fixed and variable-rate mortgages, more buyers will come back to the market. This won’t happen all at once. They will come back in layers, week over week and month over month. Once a buyer returns to the market, they will stay in the market. At some point later this year or early next, we’ll reach a critical mass of buyers and we’ll see our market move back to a seller’s market. It’s that simple. We have many people who want to move, however, they are on the sidelines for one reason or another. Those reasons will start to go away as lower interest rates make a meaningful difference for them with affordability.

As a side note, we’re also seeing a difference in the market when it comes to price points. Due to higher borrowing costs, we’re seeing lots of movement in homes below $1.5M and anything above $2M is slower… for now. Buyers in the higher price ranges have a much stronger negotiating position than they’ve had in a long time.

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