Most have heard of the game of playing chicken. It’s a game in any contest with two players where neither one wants to “back down” or let the other win, even though not backing down can be very dangerous.
It was popularized in the 1955 film Rebel Without a Cause, starring James Dean. In the movie, two teenagers drive a stolen car toward the edge of the cliff, with the goal of proving their fearlessness by refusing to swerve away. The first one to jump out of their car before it plunges over the cliff is labeled the “chicken” and loses the game.
The analogy between the chicken scene in “Rebel Without a Cause” and the real estate market stand-off between buyers and sellers lies in the high-stakes game of brinkmanship and risk-taking.
In the real estate market, buyers and sellers often engage in negotiations akin to a game of chicken. Just like in the scene, both parties drive their metaphorical “cars” toward the edge—the brink of a deal—each determined not to back down and compromise their position.
Buyers want to secure the best possible price for a property, while sellers aim to maximize their profits. Both sides are willing to push the boundaries, sometimes to the point of risking the deal collapsing, in order to prove their resolve and gain the upper hand.
Similar to the scene where the first person to swerve away is labeled the “chicken” and loses, in real estate negotiations, the party who concedes first may feel they’ve lost ground or compromised their position.
Ultimately, just as in the movie, there can be serious consequences to this game. If neither party is willing to compromise, the deal may fall through, leading to lost opportunities and potential regrets.
So, while the stakes and consequences may differ, the essence of the game of chicken resonates in the high-pressure negotiations between buyers and sellers in the real estate market.
In our case today, the game of Chicken is who will get back into the real estate market first—buyers or sellers?
Inventory levels are near all-time lows as sellers are reticent to give up their locked-in 3% mortgage rate.
On the other hand, buyers are betting sellers will blink first and sell, and more inventory will put downward pressure on prices—a strategy that worked for eight months in 2022 when rates began to rise but quickly reversed in 2023.
A rate dip is imminent. We foresee the market reacting more like a dimmer switch than a light switch. Home sale activity will begin to gradually increase as homeowners and buyers alike realize the historically low rates induced by government intervention won’t return, in all likelihood, within their lifespan.
The wild card is the amount of pent-up demand for housing. This first sign that rates are ticking down may ignite a frenzy of buyer activity and fierce competition, causing home values to rise back to their historic highs of early 2022.
LOOKING BACK
The 2007 housing downturn is a stark reminder of market dynamics on the Peninsula. Values plummeted between 2007 and 2008, bottoming out in 2009 before stagnating until 2012. However, pent-up demand led to a sudden resurgence, akin to flipping a switch, with buyers flooding back into the market.
Similar market reversals occurred in 1996, following a five-year hiatus.
The crucial lesson for today’s buyers is clear: those who seized opportunities between 2009 and 2011 outpaced their hesitant counterparts who waited for market confirmation.
History shows that the market rebounds swiftly, catching many off-guard. We urge prospective buyers to act preemptively before rates dip and home values could return to previous highs. We suggest buyers enjoy homeownership benefits now and lock in lower rates through refinancing if rates drop enough to offset the cost of refinancing.
For sellers, the anticipation of values peaking again could convince some sellers to sit on the sideline, but if there’s an equal pent-up desire to sell, all bets are off the table, as prices could fall.
It seems like a zero-sum game for buyers and sellers, and here, as in the game of chicken, there will only be one winner. The question is, how much are you willing to bet on your position?
Drew and Christine Morgan are experienced REALTORS and NOTARY PUBLIC in Belmont, CA. They have assisted buyers and sellers in their community for over 30 years. Drew and Christine have received the coveted Diamond award and ranked among the top 50 agents nationwide and the top 3 in Northern California by RE/MAX. To contact them, please call (650) 508.1441 or email info@morganhomes.com.
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This article provides educational information and is intended for informational purposes only. It should not be considered real estate, tax, insurance, or legal advice; it cannot replace advice tailored to your situation. It’s always best to seek guidance from a professional who is familiar with your scenario.
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