This series is brought to you by Josh Zuehlke + Co., a real estate group and Southwest Voices sponsor. Josh will be answering questions you have about buying a house, the real estate market, and more. This conversation was edited for clarity from a phone conversation.
If you have a question for him that isn’t covered here, submit it in the “Add Context” box below.
Southwest Voices: During our last interview, we spent a lot of time talking about the lack of inventory on the housing market. Does the situation seem to have gotten even tighter in the last three to six months?
Josh Zuehlke: I think that from an inventory perspective, it's maybe about the same or even slightly improved. We are just starting to see an influx of homes hit the market, but buyer desire is a little less, more picky, and slower to pull the trigger. It's kind of hard to be motivated when you see your affordability (what you can afford) change, you know, between $40,000 and $70,000, since the summer started.
So I don't know that the inventory levels have gotten worse, necessarily, I just think that activity levels in general have diminished.
What would your advice be right now to somebody who's looking to sell a house?
I think appropriate pricing. Pricing it aggressively. If a seller really needs to sell right now, I think that pricing it “right the first time” is the best way to ensure that it trades this fall.
Typically, if you’re selling in the fall it’s because you’re motivated. I think that testing higher prices, or the potential for a price reduction won’t bear the fruit sellers want. The risk is they could end up receiving less.
What should people be looking at as the thing that could change the current conditions of the market? Is it all down to interest rates, or is there anything beyond that?
I really do think it's an interest rate conversation.
If you're listening to the news, or you're watching national real estate pundits, the feeling is that if interest rates come down a point or two buyers will flood the market and we'll be in bidding wars. It's going to be fast and furious.
As soon as the Fed starts signaling that they're letting up on interest rates and banks respond, I think you'll see buyer demand increase and sellers open up to the idea of listing their property. I don’t think that prices are necessarily going to go down between now and then.
We're working on a series right now that's focused on how to make it less expensive to build new housing. How do we make it easier and less expensive to build new housing in Minneapolis? If we were to push for some things that could make that happen, how do you think that would impact the current market?
We've had this conversation a couple of different times and from a current market perspective, I think that the people that are suffering from the affordability aspects are the first-time homebuyers, mid-tier buyers, and first move-up buyers. I also think that a lot of the paths to future wealth are tied up in real estate.
I think if we can create opportunities for first-time homebuyers to get into the market, it really improves our city's economic standing and starts to scratch the surface of improving the income gap. It's been such a hot topic. You know, income and education, in Minnesota, and Minneapolis, in particular, are sadly and historically divided along lines of color. And I think if we can make home ownership more affordable, it’s a huge step towards bridging that gap.
Any other localized thoughts or pieces of advice that you would have for buyers right now?
What I would say to buyers is if they can, if they can figure out how to buy now, they could see an improved equity position in a couple of years as interest rates start to come down.
It doesn't seem like the right time, because interest rates are high, and the affordability index, which is the cost of the home in combination with the interest rate, feels very skewed right now. But there’s an old adage, “buy the house and rent the rate.” Rates will come down eventually, and when they do, affordability increases, but so does demand and prices.
So, believe it or not, now may be a great time to buy.
Looking back a few months ago, you were really keen on multi-generational living as a place where you thought the market was trending towards. Is that still something that you feel strongly about?
I think that it plays into the affordability aspect of ownership. If we can build and support communities where multiple generations can live in a single property (duplex, triplex, accessory dwelling unit, etc.) this has a real chance to increase generational wealth.
I think people that are struggling with the affordability aspect of properties right now should really consider how this idea may benefit them. Can they buy a duplex? Or can they buy a triplex and put brothers or sisters or parents or grandparents in it?
Any last thoughts?
I think that people are sitting on the sidelines waiting for something to happen, waiting for rates to come down. And I don't blame them, because prices really haven't come down and rates are up.
We have a client that's very, very well qualified, they've got a pile of money in the bank. And they're like, ‘Hey, listen, we won't pay any more than this number.’ Because interest rates have gone up so much that the affordability has changed. So they're looking at the same payment for a $600,000 house now, where in June, they were looking at a $650,000 house.
The longer that those interest rates stay high, the more that that begins to deteriorate sales prices. And we haven't seen that real significantly yet. But this is deflation, right? We're trying to create deflation in the economy. And that is how it's most effective – reducing equity from sellers means less money back into the economy.