Uncategorized June 8, 2023

Is this the Start of the Summer Slump?

Seasonal patterns in the real estate market are the underlying bedrock of many of our statistics. We don’t always follow those seasonal patterns as short-term effects can override the typical seasonal patterns, but when there isn’t any outside influence pushing the market hotter or colder, we generally revert back to our seasonal patterns. The seasonal patterns themselves can change, but they are long-term systemic changes that typically don’t happen within year over year time frames.

If we follow the typical seasonal patterns this year, we’ll shortly be entering the so-called “summer slump”. A time period where buyer demand remains flat or drops slightly, while the number of sellers typically continues to rise for several more months. More supply, less demand, typically that results in slower market activity. The exact start of the summer slump varies year by year, but the beginning of June is a good reliable starting point. The slump typically ends as kids start returning to school in the fall and the market recovers some strength until we hit the end of the year holidays when we typically go dormant till mid-January.

This year has been unusual in that we have had fewer sellers than expected and fewer buyers than typical. We’ve discussed possible reasons before. Fewer sellers because many homeowners feel locked into their current homes by their substantially lower mortgage rates. We’ve lost sellers who were making a move by choice and are left mostly with sellers who are moving by necessity. With mortgage rates again touching 7%, easy to see why so few buyers are out in the market looking to buy.

This chart makes some assumptions (the dotted projections for Total Inventory, Available Homes and Under Contract Homes) through the end of the year. If those projections play out, we could see a stronger summer slump than we have over the last several years. The yellow arrow showing the gap between supply and the demand to absorb that supply greater in size than the green arrow showing the same gap in the 5-year averages. On the other hand, the market this year has been showing a great deal of variability and apparent randomness, so it’s also possible that these projections will be totally off. Again, typical seasonal patterns without outside influence. What outside influences could change for the rest of the year? Recession, positive or negative interest rate movements, extreme weather events such as fires or floods, continued geopolitical instability, or the squid people could finally unmask themselves (least likely scenario, but, hey, after the last several years, I’m not sure anything is completely implausible).

Whatever happens, we’ll be watching the market stats and movements and trying to make sense of what we’re seeing. Hope everyone has a fabulous summer!