1. Home Price Growth is Slowing Dramatically

Now read that again. It doesn’t say prices are dropping. It doesn’t say prices are crashing. It’s slowing. Dramatically.

Over the past 3-4 years, home prices have risen about 50%. We are due for some major slowing. We pretty much already got all the price growth we deserve for several years. Considering home prices historically rise 3-5% per year, we gained over 10 years in price growth in about 3. To me, this slowing is a welcome change. And yes, it happened fast, but it needed to. We were out of control and we needed a dramatic change. We are finally starting to balance out. And a balanced market is a good housing market for all. We are getting back on the right track.

2. Higher Interest Rates: Not Great For Inventory

This thought is borrowed from my lender friend Gavin…

If you’re waiting on a housing crash to get a good deal, just remember that sellers don’t have to sell. They can take their ball and go home.
If these rates make you uneasy, keep in mind that if/when rates drop, that likely won’t lead to better affordability; historically low rates just lead to increased prices. And if you buy now and rates drop you can refinance into a lower rate/payment (you can’t refi what you don’t own)

Most Sellers are sitting on an interest rate in the 3’s or lower. If they sell and buy another home they will double their interest rate to the 6’s. This is keeping most sellers in place. Only those who absolutely need to sell for some reason, have cash/enough equity to buy their next home, or are not planning on buying again, are selling. Therefore, the inventory is remaining low. Which inevitably keeps prices high.

3. The Home Builder’s Shift Toward Smaller U.S. Markets Continues

We are losing our builders in the big cities. With the price growth slowing, they can’t make the profits they used to. They need to go to more balanced markets that still have plenty of price growth to go. That isn’t helping the inventory situation either in the big cities. Notice the new home building is primarily on the borders of the metro area. The exception is apartments, Portland is still exploding with new apartment buildings.

1. AN ECONOMIC RECESSION DOESN’T MEAN HOME PRICES WILL FALL

We all remember what happened in 2008, and unfortunately for many of you, the words “recession” and “housing bubble” immediately bring back memories of the crash. However, there are big differences between today’s market and the ones leading up to the crash. Before the Great Recession, the housing market had loose lending standards, an oversupply of homes, and over tapped equity. Today’s market looks the opposite with stricter lending practices, an undersupply of homes, and more equity. In fact, in four out of the last six recessions home prices still appreciated, and experts project the same for this year’s forecast.

2. HOUSING EXPERTS PROJECT CONTINUED PRICE APPRECIATION

While growing, inventory is still low overall. The number of homes for sale still isn’t meeting the strong demand from buyers. That’s why most major housing experts project ongoing home price appreciation in most markets. It will just happen at a more moderate pace moving forward.

3. WAITING TO BUY? IT MAY COST MORE $$$ THAN TIME

As the saying goes, trying to time the housing market perfectly is a bit like playing the lottery. And the truth is, with the current unpredictability of mortgage rates and experts predicting continued home price appreciation, buying a home sooner than later may be the better financial decision. Even at a more typical pace of appreciation, today’s buyers still stand to make significant equity gains as their home grows in value over the next few years.

4. THE SHIFTING MARKET IS GREAT NEWS FOR BUYERS

Should I buy a home right now? The good news is that what was once your greatest challenge may now be your greatest opportunity. Today, data shows buyer demand is moderating in the wake of higher mortgage rates. This shift in the housing market is good news for those of you with homebuying plans. Bidding wars have eased in recent months and housing supply is finally able to grow which means more options to choose from. This is great news for any of you that may have put off your buying plans the last two years because the market was too hot to handle.

5. IT‘S STILL A SELLER’S MARKET…OR IS IT?

As there’s more and more talk about the real estate market cooling off from the peak frenzy it saw during the last couple years, you may wonder what that means for anyone wanting to sell? Technically, it is still a Sellers Market on paper. Even though inventory is growing, there’s still a shortage of homes to meet buyer demand. While buyer demand is softening due to higher mortgage rates, homes that are priced right are still selling fast. Yet, the multiple offers have slowed and repair negotiations are becoming more favorable to the buyer now that they have several other choices out there with more housing supply.

No one really has any idea how this market is going to pan out this summer…still. As I look at all my resources to find material for this newsletter, they are all silent over the last few weeks. I read an article from a couple weeks ago that says that 168,000 households are now priced out of the market because of the increase of interest rates. Another mentions that inventory increased by 8.9% in one month. Inflation is still rising, gas prices are still high, and we are having another Covid surge. None of these are typically good for the housing market, most would think and agree.

But people are still moving! And they will continue to! I have 3 new listings this month and my buyers that I am working with are seeing many more options out there. It is peak season, so that is all typical. There are still people who want to and can afford to buy. July and August is typically when we see the highest inventory each year, so the increase in inventory is not alarming. Yet, we are seeing a reduction in lockbox openings, and that means that houses are going to take a little longer to sell, which is different from what we experienced the last couple of years. We are also seeing much less multiple offer situations and many houses are being sold for list price or below witch is pretty normal actually. But we are not seeing desperation and huge price reductions, so there is that! So maybe we are just getting back to a normal balanced market and that would be a very welcome change and something we haven’t seen for quite a while!

Always happy to have a one on one conversation with more detail with anyone!

We are now officially in a “mixed bag” market! The houses that are in the perfect location, and condition, and at a good price are still getting top dollar and multiple offers. The ones that lack at least one of those attributes are sitting on the market for a little while, and if they sit long enough, we are seeing price reductions. Using comparable properties to determine what price to list at or buy at is getting harder. Unfortunately, no one can predict what will happen in the next month, season, or year. Real Estate just got more interesting, and difficult, for all parties. We’ve never been in this low inventory, high demand, high income, high inflation, high rates market.

I have good news to share…

• Increasing Inventory, although minimal, and less competition is coming and buyers will finally be able to shop around to find exactly what they want and will have more options to look at and consider.
• Bidding wars are slowing down and modest offers are actually being accepted. You can finally get a house for the asking price or (gasp!) even under the asking price!
• Seller concessions will return and AS-IS offers and Appraisal Gaps will not be required with every offer. YAY!! (If you need clarification, reach out and I’m happy to explain)

And I have not-so-good news…

• Inflation and supply chain issues have increased construction costs and that will remain for the near future. We won’t see much-increased inventory or cost relief from new construction for a while. Inventory won’t get high enough to balance the market fully and rentals will remain expensive. It will still be a Seller’s market for quite a while. We still have high demand and low inventory.
• Interest rates are going to continue to increase, potentially on a daily basis. Monthly payments will increase for home purchases and for rental properties. Inflation will need to go down to get rates to retreat. Not sure rents will ever go lower.
• Prices are most likely going to flatten overall. Buyers can’t expect a screaming deal quite yet, and sellers can’t expect a huge equity gain anymore, therefore no one will be happy for a while. 😉

For an in-depth look, this is a great article that explains the current housing market conditions.
https://www.freddiemac.com/research/insight/20220609-what-drove-home-price-growth-and-can-it-continue

Well, the interest rate hikes over the past month or so definitely worked to slow down some of the crazy market activity, maybe too well. Many of the First Time Home Buyers (FTHB’s) had their dreams slashed when their lenders broke the news in the past few weeks that their estimated monthly payments would be way higher with the increase in mortgage rates. Many got priced completely out and others had to adjust expectations of what they could and could not afford now. Skyrocketing price appreciation and mortgage interest rates have many buyers sitting on the fence, even more so now. The Move Up Buyers are not being affected as much. A small adjustment here and there, and most buyers who are also sellers can still make their move into a new home using their equity gain to minimize their payments.

While today’s housing market is anything but normal, and admittedly inflated, it’s not because of the same circumstances surrounding the housing bubble of the early 2000s that caused that crash. Back then, new construction single-family homes flooded the market, lending standards were incredibly loose, and many homeowners were cashing out their equity left and right. Today’s market is nearly the exact opposite. The thousands of foreclosures that everyone was expecting won’t be happening as it did in the last correction. Today’s data shows that most homeowners are exiting their forbearance plans either fully caught up on payments or with a plan from the bank that restructured their loan in a way that allowed them to start making payments again. If they can’t work out a plan, most homeowners have enough equity to sell and make a few dollars still. While house price growth is expected to moderate from the rapid pace of 2021, strong home buyer demand and a historically tight inventory of homes for sale will likely keep appreciation positive in the coming year, with current estimates at 9% in 2022.

For April, year over year, Average Sale Price is up 11.3% ($543,900 vs. $605,600) and Median Sale Price is up 11.2% ($484,900 vs. $539,000). Inventory for sale rose slightly again to a still low of 0.08 months, 0.01 more than last month. New listings are down (9.4%) and Pending sales are down (11.6%) from last April, although Listings are up and Pending sales are down from last month. Sellers still remain in a great position to sell and will be able to realize a nice chunk of equity and appreciation when they do in most cases.