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The Real Estate Correction Explained

The current housing market presents a sobering reality that we need to address head-on. Let’s break down the key factors affecting both buyers and sellers, and explore why understanding the complete picture is crucial for making informed decisions.

The Affordability Gap

The numbers tell a striking story: The median income required to purchase a basic house in the United States has reached $120,000. This isn’t for a luxury home or even an average property—this is just to get a foot in the door of home-ownership. Meanwhile, the actual median income in the U.S. hovers around $86,000, creating a stark 40% gap between what’s needed and what most Americans earn.

While we’ve seen slight improvements in recent months, the market requires a more substantial correction. The past decade’s equity gains have defied historical housing trends, accelerating at an unprecedented rate that simply isn’t sustainable.

A New Perspective for Sellers and Agents

Recently, I encountered a situation that perfectly illustrates a common misconception in today’s market. A seller was reluctant to accept what they perceived as a “low” offer, insisting on holding out for an additional $40,000 on their $900,000 property. Here’s why this thinking needs to change:

The Two-Sided Transaction

What many sellers overlook is that they’re not just selling in this market—they’re buying in it too. Let’s break down the math:

If a seller is hoping to net an additional $40,000 on their sale
And they’re planning to purchase a new home for around $850,000
In today’s “cooler” market, they might receive an offer of $810,000 on their current home
But they’ll also be able to purchase their next home at a correspondingly lower price

The key advantage? A lower tax base on the new property compared to what they would have faced in the previous hot market. This means long-term savings that often outweigh the perceived “loss” on the sale price.

Overcoming the Psychological Barrier

The current market challenge is largely psychological. Sellers often fixate on “winning” the sale without considering the complete transaction. As real estate professionals, we need to re-frame the conversation: it’s not about winning or losing on either end—it’s about the net result of the entire transaction.

Opportunities in New Construction

For lenders and agents, there’s a silver lining in the current market: new construction opportunities, particularly with small regional builders. Here’s why:

Building Costs Are Down: Framing lumber prices have returned to pre-COVID levels, eliminating the panic-induced price spikes we saw during the pandemic. This creates opportunities for builders to either:
- Build in better profit margins
- Pass savings on to buyers, making new homes more affordable
Business Opportunities:
- Lenders who can offer competitive rates can secure valuable builder relationships
- Realtors can earn referral fees by connecting investors or builders with lenders
- For construction loans, consider partnering with specialists and earning referral fees rather than handling complex loans directly

Moving Forward

The key to navigating today’s market successfully lies in understanding and communicating the complete picture. When we help sellers see beyond the immediate sale price to understand the net benefit of moving in the current market, we can facilitate healthier transactions that benefit all parties involved.

For real estate professionals, this presents an opportunity to position yourself as a problem solver and trusted advisor. By helping clients understand these market dynamics, you’re not just closing a sale—you’re building lasting relationships based on genuine value and insight.