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January 2023 Market update

Due to the increase in interest rates last year, prices have steadily drifted downward since May. In May of 2022, average prices were 23% higher than in May of 2021, but in December 2022 the average prices were almost equal to those in December 2021. Prices climbed from January and returned to where we started from by the end of 2022. I expect prices will continue to drift lower until we are about 15-20% lower than in May which means we have another 5% to fall. Once we complete the 20% decline the cost of a mortgage will be mostly adjusted for in the price of the home.

The current prices only represent about a 10% decline in prices when you compare “apples-to-apples”. The lower average price is due to sales that have shifted to smaller properties resulting in the incerased change in the average. In other words, people who had planned to buy a single Family Home settled for a townhome, etc.

One of the biggest factors in our market for the next few years is the fact that many homeowners are “locked-in” with their current mortgage. In Utah, of existing mortgages:

33% have an interest rate Lower than 3%

46%  have an interest rate  between 3% and 4%

15%  have an interest rate  between 4% and 5%

This means that roughly 94% of mortgagors in Utah are going to have a hard time deciding to trade their cheap mortgage for much more expensive money, so many will not move. Since rates are predicted to hover in their current range for a few years (according to UofU economists) there will be much less movement in the overall market as people decide to stay with their current home due to the much lower payment.

Demand will remain high because Utah still does not have enough housing. There are various estimates of how many additional units we need, but we are several years away from meeting the demand.

The only thing that will cause a major decline in prices is if we have a significant number of layoffs in the area. Barring a major economic downturn, I think that we will be in a state of stagnation of property values and very little turnover for the next few years.

There may be some limited opportunities in 2023 in higher end homes since there are more “sophisticated” (dangerous) loan products on some of those homes. Those loans are fairly rare and in order for a “deal” to emerge, the bad loan product will have to coincide with a personal reversal.

The bottom line is that if you want to make a move for your own reasons you should do it! There is no reason to be in a hurry, and likewise no real reason to put off a change if it is the right thing for your family.  I think it is a mistake to wait for a major downturn and an equally bad mistake to rush into a move that isn’t right.

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How To Get Your Offer Accepted

The real estate market has been crazy for the last couple of years.  The media calls it a “Seller’s Market” or sometimes a “Frenzy”, but trust me, it is crazy. What it means to you as a buyer, is that we have to go to great lengths to get offers accepted by Sellers.  As your agent, we do a lot of work behind the scenes to make sure that your offer will get accepted.  We work hard to build relationships with other agents, communicate with listing agents through the looking and offer process, and anything else it takes to get in the good favor of the listing agent.  It is up to you to choose terms and conditions that will be the very most attractive to a Seller when it comes to making the actual offer.  These tips will help your offer to get accepted.

Earnest Money

Whenever you make an offer on real estate you need to include earnest money. It is usually about 1 to 2% of the purchase price. The earnest money is applied towards your down payment. A few years ago it was extremely common for earnest money to be completely refundable until after the financing and appraisal on the property were done. These days, in order to get an offer accepted, it is not unusual to make part or all of the money non refundable upon acceptance! That means that you are fully committing your earnest money before you have even had a chance to do a thorough inspection. The risk is that something major comes up during the transaction and you end up losing the earnest money. Though it is risky, this bold move often pays off and getting an offer accepted.

Appraisal Waiver

If you have a big enough down payment or are paying cash it is possible to waive the appraisal condition. Sellers are very concerned about their home appraising for enough money in a market with prices increasing so quickly. If you plan to make a 20% down payment but have an extra 10% on hand you could offer to pay the difference if the appraisal comes in lower than the accepted price. Obviously, with cash the appraisal is irrelevant so you should waive it every time.

Waive Due diligence 

If you are confident about the condition of a home, the area and any other relevant information, you could waive the due diligence condition. Normally the due diligence condition allows you to cancel the contract for any reason. When you waive this condition it is a clear sign to a seller that you are committed to purchase the property. There is usually enough time before making an offer to verify many details about a property. If you are confident enough to waive this condition you might just get your offer accepted.

Waive Financing

You could also choose to waive the financing condition. If you are completely confident that your loan is going to go through, this is an easy condition to eliminate. Not to harp on the issue, but getting your financing sorted out completely and early is the best approach! When an offer is not conditioned upon financing it is one less thing a seller has to worry about and improves your chances of getting your offer accepted.

Timing

Most sellers want to close as soon as possible and get as much money as they can but that is not true in every case. We do everything we can to understand the motivations of the seller and match your offer to their needs. Occasionally there is a unique one, but normally if you can close faster you have a better chance of having your offer accepted. This is the main reason why cash offers are so attractive to sellers.

Rent Back

If you are flexible as a buyer and have a place to stay it can be extremely attractive if you offer to rent the property back to a seller. If you are doing a loan you can only rent back for up to 59 days. If you are paying cash you can make whatever is needed work for the Seller. Most of the time the rent is set at whatever the Buyer’s payment is, but if you can make the payment while not living in the house a free rent back can be a big motivation.

We work hard to make sure that your offer is as competitive as possible regardless of your situation.  Not everyone can write an offer that is a dream for a Seller, but you can improve your odds by having someone in your corner that will make sure your offer is as strong as possible.

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Due Diligence

Once you have the property under contract you have to make sure that everything is really going to work for you. This process is called Due Diligence. It is easy to fall in love at first sight, but only after a little work and time will you know that it is true love. A property  is no different.  You generally have 1 to 3 weeks to inspect the property and everything about it before you are completely locked in on a purchase. In a hot market sometimes you will try to take care of these things before even making an offer, but normally you will have a little bit of time once the offer is accepted to get these things done.

Home Inspections

The first step in the process is usually a home inspection. In Utah there are no requirements for home inspectors to be licensed so it is important to select an inspector that is highly recommended. (We are always happy to give you a few referrals) The home inspector will go through the home and point out areas of concern. The inspector is usually not an expert in more than one thing so it is important to leave enough time after the inspection to get the right professionals to take a look at specific items once the inspection is completed.

Specific System Check

Sometimes there are only one or two areas of concern after an inspection. In the case of a condo you may elect to skip a home inspection because you are only responsible for the HVAC systems and plumbing.  Many professionals are not accustomed to doing an inspection so the more information you have when scheduling them the better. It is good to ask what a service call costs when contacting a professional so they know that you are willing to pay them for coming. Many people offer free estimates but it is not realistic to expect someone to show up to inspect the system without getting paid.

Neighbor Background Checks

If you are particularly concerned about the people you live around, you can check the sex offender registry in Utah. That registry is by no means comprehensive but at least let you know if there are people nearby on the registry. There will always be someone, so do not be alarmed if one or two show up, the question is just how nervous you are about them. You can also contact local police departments about crime in a specific area. Generally police officers are hesitant to disclose specifics but if you chat with them for a bit you can sometimes get good information.

Flood Zone

The title company and Lender will identify if a property is in a flood zone but they may not tell you until right before closing unless you ask. It is important to know if  the property you are buying is in a floodplain because it can require you to carry extra insurance. Of course there is the risk of actually having a flood occur, so you need to evaluate the risks that you are willing to accept if the home is in a flood zone.

The main thing to remember is that during the due diligence time period you have a chance to decide if this house is right for you or not. You do not need to limit yourself to any specific inspections. Check the things you worry about. I have had clients bring a religious leader to look at a house and make sure that it was free of negative energy or attend church with the local congregation. I have had clients review past news reports to make sure the house was not involved in any notorious events. The most scary inspection of all is if you choose to have the in-laws check it out!  Just remember to check the things that are most important to you.