There is no doubt that the market is slowing. The big question is, “Are we seeing the normal summer slowdown, or is this the long-anticipated shift?”
Encircling the earth near the thermal equator is a region known for its monotonous calm weather. Called the Intertropical Convergence Zone, it’s where the northeast and the southeast trade winds merge. Although its exact location can vary year to year, the effect is the same: becalmed seas that can last for prolonged periods.
The area is called The Doldrums, and in the days of wind-driven sailing ships, it was dreaded and even feared. Ships stranded in the still seas had no means of moving and often languished for days, weeks or longer before they could escape.
Over the years, the word “doldrums” has taken on broader meanings and now can refer to anything stagnant, inactive or depressed. In terms of real estate markets, it describes a period where nothing much is happening, and houses can linger on the market for unreasonably long periods.
It’s strange to think of real estate sales as being “in the doldrums” in the current overheated market.
In a market with houses flying off the shelf in mere days, we are reminded instead of wild, turbulent seas. Yet, every year in our region, beginning approximately mid-June, real estate sales have historically entered the doldrums. There are several reasons:
- Children are out of school.
- Father’s Day is on the horizon.
- Graduations are well underway.
- Everyone is gearing up for the Fourth of July as we officially launch into summer.
Everyone seems to take a collective pause to catch their breath.
The length of time the market languishes varies from year to year. In 2019, June signaled a downward shift that lasted through to the end of the year. In sharp contrast, in 2020, the slowdown only lasted a couple of weeks before blasting off again. This year, the slowdown seems to be enduring a bit longer.
All of which brings up an interesting question: Are we seeing the typical Doldrums pattern, or is this the precursor to a shifting market?
There is no question the market is slower overall.
For example, average prices in Alameda County, California, soared from $1,169,000 in January 2021 to $1,405,000 in April 2021, yet we only saw incremental changes to $1,412,000 in May, 2021 and $1,419,000 in June, 2021.
Although the beginning of 2021 saw record-setting market increases, inventory is increasing. We are seeing lower list prices in some regions, days on the market are going up, and multiple offers are declining, as Inman reported.
Personally, I believe that the market in many regions of the country has priced itself out of the range of a significant number of buyers. I do not believe we are seeing a shift, but we are certainly due for a correction.
Long-term prospects still look good for moderate continued growth with low interest rates and a strong economy. Perhaps the summer doldrums are the first indicators of a correction. It would certainly be welcome news for many buyers.
As Inman’s Daniel Houston reported this week, “First-time buyers have been budgeting, working on their credit scores and saving toward a down payment even as many have become less confident in their ability to secure their first house, according to the new report from JPMorgan Chase & Co.”
Slower markets mean less competition when writing offers, lower prices, the ability to negotiate repairs and write offers with contingency periods intact.
Sellers can hardly complain: The recent boom has driven prices to unprecedented heights and though we might see lower selling prices soon, realized gains over the past 12 months can only be described as “epic.”
Doldrums or shift? We should know which fairly soon.
Carl Medford is the CEO of The Medford Team.