Unpacking Oddities and Multiple Offers in a Balanced Market

If the Market is Cooling - Why am I still Competing so Hard?

By Ryan Williams

My fiance wearily climbs the front steps as I greet her at the door after a long day of work, laptop bag and other workplace necessities dangling from her arms. She looks perturbed.

"Did you see that?" She asks, gesturing to a house kitty corner to our house. A house that once belonged to her.

Four years after she sold her home and moved in with me, purchasing some of the equity I had and becoming an owner of my stead, her 'unicorn' - a home she became convinced she'd never find another with the same vibe - is for sale again. 

Before I continue, allow me to answer your nagging but off topic questions. Yes, we were neighbours. No, nothing weird went on, sometimes people just meet people in their own neighbourhood. Finally, when she realized she was spending more time here than there, effectively meaning she was paying a mortgage for a property that was exceptionally spacious for two cats, we made a difficult decision based on rational points: my house was larger by square footage, it had a jacuzzi tub which we really loved, and a walk out basement. That being said, it was an extreme compromise for her, so to see it go on sale again was somewhat heartbreaking.

She did what anyone would do in this situation. She searched it on MLS to see what they were asking. 

$499,000. 

"They'll never get that!"

Of course, that explanation is based on all the rational predictive elements available. The most expensive houses on this block, as of summer of last year, arguably the height of the hot sellers' market were going for just over $500,000. The stats tell a story of a cooling in the market. There are more listings on the market than in the previous three years, there are fewer sales of those listings, and over a longer period of days on market. The median price is down, and so is the sale-to-list-price percentage. And while the house in question is a great house, well maintained, and on a corner lot, it's not the biggest nor best house on the block, and it's not as if houses on this block come up infrequently, and people are climbing over each other to get in here. 

All the signs pointed to 'they'll never get that' - and yet, they basically got that (495k or 99.2% of list) and they did it in under a week, well under the current average days on market YTD of 42 days.

What. The?

In fact, talking to friends and colleagues alike, I've heard countless stories of buyers still competing in multiple offer situations in markets from average to near million dollar listings. So what gives? If everyone including me is touting a balanced market where the inventory available meets the needs of buyers and price can be negotiated without multiple offer situations, why isn't that happening?

It's Early

We have barely eeked into the beginning of the busiest time for the residential real estate market, and at this time of year we are only beginning to see the upward slope of the bell curve for shoppers in the market and people listing their homes. As more homes enter the market and the inventory grows, leading to greater choice for consumers, shoppers won't be so constrained in terms of having only one or two homes that meet their needs. They may very well be able to easily walk away from a multiple offer situation knowing alternative homes that meet their criteria exist.

This Isn't a Bubble Bursting - It's a Gradual Transition

It's important to note that as we follow the data, the prediction of a balanced market does not mean an immediate and violent market shift, or market correction. It's more that we're at the tail end of the hot sellers' market and experiencing a metered changeover. It won't be like spring of 2024, where suddenly spring meant the return of geese and qualified buyers in flocks as soon as the weather became nice. There are likely frustrated buyers still left over from the hot market that are still desperately competing for homes in the most popular segments, and that's compounded by the fact that inventory isn't very high over winter. Those people who usually shop over winter aren't tire kickers. There's not a lot of inventory to window shop, the weather sucks and trudging through snow and ice on hazardous roads isn't exactly the most fun field trip. If every buyer in a specific slice of the pie that is the market is dead set on finding a home no-holds-barred, as quick as possible, that market is going to feel like a mosh pit at at thrash concert, at least in the short term.

"Why don't they just wait until there's more inventory?" You ask.

There are lots of valid reasons why these people might be shopping now. Some of them may have sold their existing houses and need to be out by a certain time. Some of them may be shopping in segments and neighbourhoods that have houses come up infrequently. Ultimately their behavior has been driven by a market that has existed or is somewhat persisting rather than what's to come. We'd expect that if they're around long enough to witness an increase in inventory, their behavior would fall in line with what the market requires of them.

Rationality and Assumption

And then there's the intangibles. There's only so much predictive economic models can cover, and at some point you have to make an assumption about some of the variables you're working with, otherwise we might as well throw your hands up and say, "there's no point, everything is chaos!" In most models, we assume consumers are rational, and motivated by rational needs. The most basic of the tenets of real estate rationality is that we assume everyone wants to own their own property, and that if you could pass the stress test, and the payments are within your TDSR, and you have the down payment, you should buy a house literally now. And we've shown why rationally that's mathematically true in terms of retaining value on what you're paying into a property versus dumping into rent on my youtube channel. Further to that, the idea of the ladder of success is still quite prevalent in real estate. If you're not familiar with this, Alfred P. Sloan, president of General Motors in the 1920s (yes, the guy that invented planned obselecense) introduced many companion brands of already existing companies Chevrolet, Buick, Oldsmobile and Caddilac. Many of these brands died a quick death at the hands of the great depression, but the idea persisted that as you became more successful, older, and moved through stages of life, the car you would buy would reflect that. You'd start with a Chevrolet or a sportier Pontiac. You'd move to a more practical and comfortable Oldsmobile as a career man, and then in later stages of life, when you'd amassed enough wealth, you'd get a Buick and finally a Cadillac. We do this with houses too, which basically boils down to the idea that you should be buying the largest and most luxurious house you can afford, as soon as you can afford it.

Obviously there are a few massive problems with this thinking. 

Firstly, not everyone wants to immediately go out and purchase the biggest and most luxurious house they can afford. Even if they do, the current economic volatility might delay that anyway as consumer confidence is low (this is rational). But even if consumer confidence was high, and people had infinite funds, some people just like what they like, however irrationally. For example, you like your house, right (if you don't, maybe you should contact me)? I bet you can think of a few rational things about it you liked when you bought it that made functional sense, but I bet now that you've had it for a while you can think of a bunch of intangibles that make you love it. I bet some of those are tied to memory. Nostalgia is irrational. It can't be quantified with math. Economically, you having memories of a great Christmas with the kids in the living room, or the time you and your friends all had to wear garbage bags over your clothes in the kitchen because you had a massive seafood bake and butter was flying everywhere, those are all irrational. They're not supposed to factor in to your decision about whether or not you purchase a different home, but we all know they do. "I love my house, I don't want to move," is a pretty typical sentiment, even if functionally the house no longer makes sense, the storage isn't enough, you don't have enough parking, your kids have moved out and you're vacuuming guest rooms every week that no one has even gone into. Not into spending everything you make on your house in order to build value and amass wealth? Would you rather spend money on vacations or hobbies that aren't investments? Totally irrational! If not, completely sensical. 

Secondly, the next step on the rung of the ladder of success might be exceedingly tall because there are massive gaps in the market, or the amount of people on that rung are so great, there's no where for you to stand. At the beginning of 2024, many city planners and developers got together and mobilized on an identified need for constructing more semi-detached housing starting in the mid to high $200,000s. At the time, there was simply a lack of this type of housing in the market. Every time there is demand, but a lack of supply, in a current market segment, the price in that segment gets driven up. People with $180,000 apartment condominiums' closest next step were semi detached duplexes that were so in demand, the prices of those semi-detached homes were approaching prices of detached homes of approximately the same size. Basically, you were in a Chevy, there were no Pontiacs at dealers, and the Oldsmobiles for sale were as expensive as Buicks, and they were still flying off dealers lots. It seems to make logical sense that, even if you could afford it, you might not want to participate in that market because it would just be a pain in the butt. Aside from that, you might personally feel like the area of the market that's in the highest demand is not logically worth it because of the inflated price. Now, this is an interesting one, because it may or may not be rationally true. This really depends on the individual case. The market segment that the potential buyers may want to get into might very well be inflated, and waiting for things to cool might actually be the correct move, especially if the value of the property they currently have is staying the same or increasing. The problem lies where a lot of consumers act on a gut feeling or a snippet of news they've heard without getting the full story. Let's be honest, we all do this sometimes, where we have a feeling something might be true or untrue without actually getting into the numbers and the statistics. This causes people to behave in a way that's irrational, and might be contrary to the market.

Finally, people might just be operating under pretenses that are just not true or have bad information, without looking at the statistics. Especially if they've been out of the market for a long time. A lot of people will begin a housing search without a Realtor, you see this all the time at open houses. Some agents call them tire kickers, I personally don't like applying what kind of sounds like a derogatory term to what these people are doing, because it's not necessarily an irresponsible first step. Many consumers need to answer the question for themselves, "Should I buy or sell?" First, before they hire a Realtor and go talk to their mortgage broker. I see the touring-open-houses phase as the start of a feasibility study for these consumers. They want to see what's out there, and they want to see what the price is of houses like their house, and houses they intend to buy. Sometimes these differences are too big, and they decide they're not in the market, so there's nothing wrong with starting there. However, there is a decidedly statistically significant portion of these people that still have the idea of the market as something similar to the last time they purchased, or someone they know purchased a house, and that is often not concurrent with reality. This was extremely prevalent during 2024, as the previous few years had seen prices and demand continuously declining; it had been a buyers' market for a few years. The true difficulty comes when these individuals just refuse to believe there has been a market shift, for whatever reason. Even when working with a qualified Realtor that insists upon statistics and making reasonable offers, some of these individuals just do not want to conform to the market. The thing about this behavior is it's completely innocuous for those acting like it's a Buyers' market in a Sellers' market. They'll simply keep getting outbid on everything until they go away or change their strategy. They have very little influence when so much competition exists. In all other markets, they become very dangerous. A statistically significant number of buyers overbidding on homes and acting as if its a Sellers' market in a Buyers' or Balanced market can effect the market negatively. If you have a home for sale, and someone offers you 102% of your list price, even though the average sale-to-list-price is 99%, you're not going to say no to an extra few thousand! Oh, and it gets worse. Imagine that person that bid 102% still believes that reasonable inventory doesn't exist, and that everything is in a multiple offer situation. Now imagine our proverbial house for sale has a completely reasonable 99% offer already on it, and instead of walking away, our irrational buyer bids 102% and wins. Now the OTHER buyer has anecdotal evidence that homes are still selling for over list and in multiple offer situations, and now THEY think this is how you have to behave to buy a home in that market segment.  And then they tell two friends, and they tell two friends, and so forth. I believe there is likely enough of a contingent of people who either don't believe or don't want to wait for the market to change that they are extending the hot seller period, perhaps artificially.

A Rational Strategy

How do you operate in this market, then, without waiting to enter it? The answer might be simpler than you think.

Enter the market, and trust the math. 

The biggest winners will be those who can put the biggest gap between selling their current home, and purchasing their next one. Think, if you were to sell your house now while people are still trying to outbid each other on every property that comes online, but your buyer can wait 60-90 days for posession while you shop in an inventory rich market, giving you the ability to say 'no' to instances of potentially overpriced homes with multiple bidders, you're going to get the most bang for your buck. Even if the market doesn't cool as quickly as expected, you haven't lost anything, you still likely sold your home at a higher or at least even market position.

So, yes, the balanced market is still coming, it still might take a while to get there, but it's not a bad idea to enter the market now, especially if you have a home to sell.

In all cases, having a qualified Realtor who's pretty great at interpreting stats and trends helps too.