What is going on with the housing market?
US home prices have seen a rise of almost 40% in two years. Last year, Fed Chairman Jerome Powell said that the US housing market was overheated and needed a “reset.” In order to accomplish this, the Fed has been aggressively raising interest rates for the past year.
As most of you are probably aware by now, the housing market in most areas has screeched to a halt with decreased showing activity and ultimately lower sales prices. I think at this point, it’s pretty clear that the rise in interest rates has had a dramatic effect on the housing market. It’s not surprising when you look at how quickly the Fed has raised rates and to what degree. It’s normal for the Fed to raise and lower interest rates but they are typically much smaller increases and decreases and they are spread out over years. If you take a look at this chart on the St Louis Fed’s website, you can see how aggressive the recent interest rate hikes have been compared to the last time they raised rates from 2015 to 2019.
So what does this mean for you? Well, if you are selling a property right now, it’s likely to be a rough road ahead. I wanted to film a short video just to go over a few options you may have.
Option #1: Price Drop
This is an obvious one - if you have a property already on the market and it’s not selling, there’s a good chance you need to drop the price. As you drop the price and the price comes more in line with what the market is willing to pay for it, showing activity should increase and you should start to receive offers. Talk with your agent or check out the comparable properties that are selling near you to see how much of a price drop is required to move the needle.
Option #2: Status Change
This is a trick Realtors use from time to time. This basically means we will cancel and relist a property or drop the price by a dollar or similar insignificant amount. What this does is change the status in the MLS from ACTV to NEW or PRICE CHANGE and it sends the property back out to everyone who has matching search criteria. This usually kicks up a handful of showings every time you do it so it may be a good option.
Option #3: Sell Your Home Yourself
Now I don’t recommend this but I do like to discuss all of your options. Realtor commissions can vary but are often between 5 and 6%. In theory, you could save that money but a Realtor is usually going to be able to sell your property for much more money and even with their commission, they typically net you more money than selling it yourself. Nonetheless, it is an option that needs to be considered.
Option #4: Sell Your Home To An Investor
All around the country there are investors looking to scoop up properties and turn them into rentals. We actually buy single family and multi family properties here in the Chicagoland area, as well as Northwest Indiana, and FL. However, as you can imagine, investors are not looking to pay retail prices. In order to make the investment work, most of the time they need a discount. This is typically only a viable option if the property needs heavy rehab, you need a quick cash close, or a similar scenario. If that is you and you have property in the Chicagoland area, Northwest Indiana, or FL, reach out and I’d love to see if we can help.
Option #5: Turn Your Home Into a Rental Property
In my opinion, this is the best option I have for you. If you don’t have to sell your home, you can weather the storm by turning your home into a rental property and waiting a few years for rates to go down and prices to go back up. This would allow you to take advantage of buying in a great buyer’s market and selling your home at the peak, in a seller’s market. You get a great deal with both properties. If you’re watching this, you probably know that real estate is a great way to accumulate wealth. It is said that 90% of millionaires made their money in real estate. I’m not sure if 90% is accurate but regardless, it is the overwhelming majority of millionaires. Real estate is extremely forgiving and can really build some serious wealth over time. If you do decide to turn your home into a rental property, you may just end up deciding, real estate investing is for you. In addition to being able to take advantage of market conditions, real estate investing can offer cashflow, property appreciation, and many tax benefits among other things.
Alright, I hoped this helped. If you have questions about any of this or if we can help in any way, consider us at Landmark Property Management a resource, we’re always happy to help. Feel free to check out our website at ChicagosPropertyManagement.com or give us a call. Thank you!