1). As a reminder, statistics are generalities, essentially summaries of widely disparate data generated by dozens or hundreds of unique, individual sales occurring within different time periods. They are best seen not as precise measurements, but as broad, comparative indicators, with reasonable margins of error.
In real estate, the so-called “buyers’ markets” and “sellers’ markets” have typically been defined by certain statistical thresholds: Depending on readings for months-supply-of-inventory, absorption rate, days-on-market or other metrics, the market is pronounced to be relatively “balanced” between buyers and sellers, or to favor one party or the other, typically in terms of negotiating power and home-price appreciation.
It is important to understand that statistics only mirror the buyers and sellers’ mind set at a given time. In other words, statistics are the result of buyers and sellers’ attitude towards the real estate market and it is their perception that determine what constitutes a heated (sellers’) or weak (buyers’) market not the statistics.
2). Also, bear in mind that the so called “perception” of the real estate market by buyers and sellers can change considerably depending on what people get used to.
Example 1). By longer-term standards, the current median time-on-market before acceptance of offer would not be considered particularly high. But because it is much higher than during height of the long pandemic boom, buyer and seller expectations have changed. As a result, the median days-on-market now seem high even if a few years ago they would have been thought low – and that has changed the psychology of buyers, sellers and agents.
To put it simply, as it became the norm that listings sell within 1-7 days, with wild overbidding by a surplus of buyers, then getting 1 offer at or below list price, or no offers, after 15-20 days seems like a huge shift immediately causing anxiety on the selling side, and concern on the buying side (why hasn’t this home sold yet?) – even if, historically speaking, 15-20 days is a relatively short time on market.
Example 2). In the same vein, if it becomes typical that buyers’ choice of listings is rarely more than 1 or 2 homes, usually snapped up before day’s end, it’s an almost shocking change to see 4 or 5 active listings, most still available a week later, even if that would have been considered normal or low inventory a few years earlier.
3). The above examples reflect what has occurred since the end of the, often wildly overheated, pandemic boom and illustrate what has become the norm in people mind for almost 2 years of abnormal real estate market conditions with by far the lowest interest rates, months-supply-of-inventory; days-on-market; absorption and overbidding rates, in the recent real estate history.
Therefore, when those indicators cooled in the Bay Area in Q2-Q3 2022, very significantly on a percentage basis – ½ to 1 month of inventory jumping to (a still historically low) 2 to 2.5 months; a median of 6-8 days-on-market climbing to (a still relatively low) 18 to 24 days – the speed and scale of change altered the balance of power to buyers’ advantage. Appreciation and overbidding rates have generally plunged, and price reductions soared, though many homes still sell quickly if priced correctly.
As a result, it is stating the obvious that demand has clearly weakened significantly due to the economic headwinds of 2022 – inflation, interest rates, financial market volatility – but buyer, seller and agent expectations have also been somewhat twisted out of whack, fundamentally changing how we psychologically perceive and react to existing market realities. What might have been considered relatively healthy market dynamics are now seen as distinctly anemic in comparison to the pandemic boom. With the current market correction in progress, what will ultimately be considered heated, balanced or weak remains in flux while the market adjusts to the economic and demographic changes still in process.