Standing in her ruby slippers and clicking her heals, Dorothy repeated, “There’s no place like home. There’s no place like home. There’s no place like home.” As the last syllable escaped her lips, the heroine from Kansas and her dog, Toto, instantly transported out of the enchanted land of Oz back to her bed, surrounded by friends and family.
If you are one of the millions who has seen the 1939 film The Wizard of Oz over the last eight decades, then you know Dorothy’s journey home was full of trials and tribulations. As she travels down the yellow brick road, she meets three new friends who need her help: the scarecrow needs a brain; the tin man needs a heart; and the cowardly lion needs to find his courage. The allies must also endure the machinations of the Wicked Witch of the West. Even the titular Wizard of Oz himself must be persuaded and cajoled to help, first by defeating the Wicked Witch, then by reminding him of his own humility. Through it all, we are reminded that, even in the most magical of realms, there really is no place like home.
So what does “home” mean?
When Dorothy says, “There’s no place like home,” she is referring to more than four walls and a roof. As the old saying goes, “Home is where the heart is.” Home is filled with love. It is the place where your family grows, eats meals, and builds memories. It should be the place where your body truly rests and restores your soul. Home is our refuge, our retreat, from the troubles of the world. However, finding the right place to call home can be very troublesome indeed.
Everyone needs someplace to live. Shelter is one of the most basic biological needs that we have. Early man made his dwellings out of caves. The rocky outcrops didn’t provide much in the way of comfort, but they did allow for an escape from the elements. As technology and construction techniques improved, so too did dwellings become larger, more secure, and, most importantly, more comfortable. Now, one of the highest priorities of modern home buyers is comfort.
Comfort, in the modern sense, has taken on a more complex definition as well. Millennials, who make up the largest percentage of active buyers (36%), have high expectations. On the one hand, we expect that we shouldn’t have to do anything to the home in order to move in. I’m not talking about just a new coat of paint or fresh carpets. Millennials want an open concept living space, large rooms, updated kitchen and baths, stainless steel appliances, low maintenance floors, and all the newest bells and whistles. On the other hand, we expect these things for the lowest possible price. Unfortunately, the reality of the market does not always match the high expectations.
On the opposite side of the spectrum, sellers want to maximize their return on investment. The median age of home sellers in 2016, according to the National Association of Realtors, was 55. Their median income was $103,000, and they lived in their home for 10 years. Their definition of comfort does not necessarily conform to modern styles. They bought their homes with the expectation that they would get out of the home what they put into it. For many, they bought at the peak of the housing bubble in 2006 and 2007. They withstood the economic hardships of 2008-2012, and they are finally experiencing an increase in their home’s value. There my have been updates they would have liked to implement, but financially it may not have been feasible during the darkest years of the recession. Now they are thinking about downsizing. Unfortunately, there is a disconnect between what they think their home is worth and what the value is based on the condition of the home. This disconnect has been lessened due to tight inventory, but the market is shifting.
Over the past couple years, home prices have skyrocketed as the economy is finally getting back into full gear, and demand has severely outpaced supply. In the Dayton area, this has led to a 9.34% increase in median sale price and 8.95% gain to the average sale price since June 2017. Thanks in no small part to historically low interest rates, demand for homes remained unchecked by the rising prices, in spite of the fact that inventory shrank year over year by 1.01%. However, there is one statistic that indicates change is on the horizon. Year over year sales are down 0.36%.
This small statistic may seem insignificant at first glance. However it mirror a much stronger predictor: the California housing market. Let me preface by saying that real estate markets are local, and trends can change between neighboring cities, let alone across the country. Yet, according to CNBC, “In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country.” In their report, they cite Southern California home sales in June dropped 11.8% off the same period for 2017. Additionally, they are down 1.1% from May, which historically has seen an average 6% increase in activity. Also revealing is the statistic of “affordable” home sales. The median sales price in California is $536,250. Sales for homes under $500,000 fell by 21% for the month of June 2018 vs 2017!
To compare that to the Dayton market, the median sale price is $158,000. Home sales below $159,999 for the month of June 2018 over 2017 plummeted by 17.3%! If we base it off of the average sale price of $183,876, we still have a net decrease of 14.9%. The definition of affordability may be different here than it is on the west coast, but the message is clear: there aren’t enough affordable homes!
The question we have to ask ourselves as either buyers or sellers is, “How do we navigate this market?”
First and foremost, we have to interpret and understand the numbers. Buyers, there aren’t as many affordable homes out there. New listings of average priced homes are down 9.4% year over year and 2.9% for July. For sale listings are also down 28.5% year over year, but up 6.6% in July. Therefore, while overall inventory is down, the homes that are on the market are sitting there longer. Sellers, you need to be wary of the decreasing sales figures listed above. While low inventory may contribute to decreasing sales under the median and average price, it is also indicative of decreasing demand. Rising interest rates will further cut demand, as the affordability of lending diminishes. Keep in mind that each quarter point rise in interest rates affects purchasing power by 6%, and the Fed has already announced at least one quarter point hike before the end of the year. The new trade deal with the European Union is stabilizing financial markets, which will facilitate the anticipated interest rate increase.
The best course of action for both buyers and sellers is to compromise. Seek the win-win. Buyers, specifically millennial buyers, we have champagne taste on a beer budget. Remember that we are at the beginning of our careers, and, therefore, near the bottom of our earning potential. Key items to look for in a house are a strong foundation, solid structural support, avoiding safety hazards, and potential for resale. Homes can be renovated to meet your specific style and comfort needs at a later date, but it is hard to overcome location and structural failures.
Sellers, the market is still in your favor, but it is shifting. You want to stay ahead of the market. Consider the condition of your home. Does it need any renovations? If so, is it better to complete them yourself or to discount the price and let the buyer complete the work? Maybe it is a combination of the two? Discuss with your real estate agent which renovations will yield the best return on investment, and coordinate your timeframe to ensure you move when you want to move. If you’ve been on the market for a while with little to no activity and no offers, consider a price reduction. The most effective way to utilize a price reduction is to drop the price enough to put you into a different market. $1000 or $2000 isn’t going to cut it. Depending on where you are at, you need to be looking at decreasing your list price between $5000-$10,000. Not only will this get your home back on the daily hot sheet, but it will go out to a whole new group of buyers searching in the lower price range.
Our journey home may not be easy, but we don’t need a wizard and ruby slippers to make it a reality. Shifting markets provide opportunities alongside challenges. The best way to survive is to know how to spot the difference and be willing to compromise to find the win-win. While there are some in the market fretting, “There’s no place to call home,” if you can make the most of the opportunities that come your way, then you, like Dorothy, will soon be saying, “There’s no place like home!”
My name is Tyler Blatt. I am a Millennial. I am a Realtor®. And I believe in tax reform for property owners. See you next time!
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