Is the real estate market crashing or shifting?

2022 Summer Real Estate Market Update

So is this it? Are we doing this again? If you're still shell shocked from the 2008 recession, I don't blame you. U.S. gross product fell 4.3%, making it the deepest recession since World War Two. It was the longest lasting recession at 18 months, and the unemployment rate more than doubled from less than five to 10%. While what we're dealing with is quite the same as a Great Recession, it's damaging nonetheless.

First off, we're dealing with inflation. While it recently took a dip with April numbers at 8.3% from its height of 8.5%. Are we really at a decline or just a bump in the road to more pain? Everything is just more expensive these days as a whole. Gas prices have been a massive contributor to the rise of inflation in 2022. This last April update shows a shift with gas prices being down last month 6.1%, whereas increases now are in rent, airline tickets and new vehicles, which were the main issues contributing to the latest inflation report.

Now something near and dear to my heart, residential real estate. With prices across the country rising at 20% year over year. We're having a perfect storm to keep this price appreciation train going. Add to the fact that the average price of a home rose 80% in the last ten years. It's not hard to imagine why some people are concerned and wondering if we're in a bubble that's ready to pop. So what's helping to cause the recent price hikes we had historical low rates to start off with. Add to the fact that we had low inventory of new construction and homes that didn't catch up since screeching to a halt during the 2008 crash and then COVID hit.

People froze. plans changed. People didn't put their home on the market. So the active buyers who are still buying created a deficit in the market. So now with record low inventory and eager buyers along with the new kids on the block; I-buyers. Opendoor, Zillow, Offerpad and some other companies are competing with the average Joe to purchase a home. We have a perfect storm of low inventory with high demand. Many buyers just can't compete, especially those that need to sell first in order to buy, which means they're staying put and not selling, which means they won't be putting their home on the market, which means even less inventory. So it's a cycle, unfortunately.

And finally, add to the fact that recent numbers speculate that 25% of the homes are being purchased by these cash companies to make them rentals Next, we have mortgage rates. They've gone up approximately 2.5% in the last three months. So when a country needs to control inflation, the only tool they have in controlling inflation is by raising the interest rates. And while they don't set the mortgage rates, the central bank's decision definitely influences mortgage rates. Greg McBride, chief financial analyst, said it best, “It’s the longer term outlook for economic growth and inflation that have the greatest bearing on the level and direction of mortgage rates.

Because mortgages are packaged together into securities and sold as mortgage bonds, it’s the return and investors' demand to buy these bonds that dictates the general level of mortgage rates,”.  So higher risk, higher reward, higher interest rates. So that's what we're dealing with. Rates are up and predicted to continue to rise. Higher interest rates means less home buyers can afford. So let's take on the pending sales situation. The National Association of Realtors reported five consecutive months of a decline in pending homes at 1.2% month over month. Many are hoping that it's a sign of a potential return to much calmer waters.

Yet despite the rising interest rates and lower spending for the 19th consecutive week, home prices have realized double digit year over year increases. And finally, let's talk about our inventory recently. Our inventory has shot up 6% in April, which some say it's people feeling the heat and wanting to jump ship. Of course, this is the season to sell, more homes go on the market. So how much of this is an uptick of seasonality or how much of it is fear is yet to be seen? And the White House has recently made it clear it's priority number one, with a president stating that the best thing we can do to ease the burden of housing costs is to boost the supply of quality housing, including building more new homes and preserving existing federal support and market rate affordable housing.

So now what? What should you do for buyers? Nine out of ten times, I'm going to tell you to buy. Security is critical. Secure a home one way or another. You're paying a mortgage, it's better that it's yours than someone else's.

For sellers, nobody can time the market. But if you're sitting on an investment property and you want to potentially maximize profits, now is a good time. When you really start seeing major changes in the market, it might be too late. Now is a great time to sell for most sellers. And if you're a seller that wants to buy, it's a challenge, but not impossible.

With the right strategy and team guiding you along the way, it's important that you're committed and understand the process and strategy in order to make the transaction as seamless as possible. Lastly, for some of you sellers, especially if it's your home, it might not make sense to sell.

Remember, this is your home and not a stock. You still need a place to live. So make sure that you consult with a solid real estate professional that has your best interest at heart. And of course, these options are painted with a broad brush.

Each individual will have their own unique situation. If you're interested in exploring what the best plan of attack is based off of your specific situation, click contact us above and let us know how we can be of value. And as usual, thank you for your time and we will come back with a 2022 fall market update. Comment below your insights and perspective we would love to hear your thoughts on the current real estate market.