Welcome to The Great Pause

So, you might be asking yourself – just what is The Great Pause? It seems that things gain more attention when they place a name on it. Like storms, hurricanes, etc. Once they place a name to it, it goes viral.

The Great Pause is what some are calling the current housing market. Why? Well, because the housing market was cruising just find until a certain point of 2022. For the last several years (Maybe 10 of so?) the housing market was flourishing. Sales were strong, values were increasing, some markets stronger than others, buyers were getting favorable terms on financing, etc.

Investors were buying, homeowners were buying and it was referred to as a Seller’s market because houses were selling as fast as they were listed, sometimes beyond the asking price. The market had movement. Then, with the rising adjustments of interest rates, making it more costly to borrower money, and perhaps more difficult to qualify for a loan, the market started to slow down.

The second quarter of 2022 saw slower home sales than the first quarter. The third quarter of 2022 saw event slower home sales and by the end of the fourth quarter of 2022 home sales were at a slow crawl. Now, in the first quarter of 2023 realtor offices and mortgage company offices look like ghost towns.

Buyers are pausing. Not just homeowner buyers, but real estate investor buyers are pausing too. And that applies across both single family purchases and multifamily purchases. What’s causing this pause? Multiple things.

Some home values have begun to decline, and sellers may be asking for more than what the market dictates the current value to be, so buyers will not pay more than the currently appraised value, and sellers are holding fast on what they will take. Sort of like a stalemate situation.

Homebuyers may not qualify for the home that they want, and rather than settle for what they do qualify for, they are just not buying now. Real estate investors are uncertain if property values will continue to decline and if so, buy how much, so they are having a difficult time making figures work in their calculations and aren’t certain they want to bare the risk (What if they miscalculate?)

Multifamily investors seeking new purchases are experiencing similar issues as the sellers feel they want more than the buyers feel they can pay. The rise in interest rates, making the cost of capital higher, has created issues in making the figures “pencil out” (make financial sense) in the investor’s projections for longer term holds of the asset.

These situations has caused many active buyers to pause from buying, and sellers pause from selling so all of this pausing taking place has gained the name The Great Pause. When will it end? Good question. There is much speculation on that, with some saying soon (like 3-6 months), while others saying longer (like 12-18 months). The references made are that the market needs to correct itself. Since no one we know has a crystal ball that helps predict future events, we will have to each rely on what our gut tells us and keep an eye open for changes that might occur.