Given the many stressors, troubles, and vacillations confronting the US economy, is it possible to accurately describe today’s real estate market? Unfortunately, any overview is about as clear as your mom’s explanation of cryptocurrency markets served over a plate of Eggo Waffles on a Sunday morning after a hard night at the club. In other words, it’s hard to discern what the hell is going on. For those who read my monthly blog or subscribe to the podcast, a lot of this information will be familiar. Congratulations! You can skip directly to the last few paragraphs for a current market update! For those of you who would like an informative, entertaining, and up-to-the-minute market breakdown, check out Open House, my weekly podcast co-hosted by Corey Moran. There’s no better way to occupy your time while brushing your teeth!
Where We’ve Been
Remarkably, the first four and a half months of this year played out in very much the same way as the first half of last year- the market was on a white-hot tear and sellers were, once again, king of the hill. Bidding wars propelled property values skyward and homeowners saw the price of their residences increase 15% over the previous year’s healthy gains. There were, however, storm clouds gathering as early as the beginning of March. I was personally concerned about the triple threat that inflation, rising interest rates, and Vladimir Putin would have on the vitality of the market. Despite these growing pressures, the real estate industry was little-impacted throughout most of the spring and the late-night partying continued onward. Homes still sold briskly and valuations continued to climb until…
On May 4th, the Federal Reserve raised the primary credit rate 50 basis points (after a 25-point increase back in March) and, sure enough, a few days later, we could sense that, perhaps, the saturnalian festivities might be coming to an end. The number of appointments to view properties diminished as did the number of offers tendered. Remarkably, prices did not drop significantly. Many buyers seemed unfazed by interest rates that had risen from 3% at the beginning of the year to 5% in the middle of May. Having realized that the party had now gone on too long, on June 15th Jerome Powell shouted “Last Call!”. The FOMC deejay abruptly powered-down in the middle of Beyoncé’s latest banger and the unflattering overhead fluorescent lights startled the crowd of real estate revelers below. The Chair of the Federal Reserve and his Board of Governors increased interest rates a startling three-quarters of a percent and the impact was almost immediate. The stock market plummeted while consumer confidence dropped to its lowest level since 1952. Not surprisingly, the commerce of landed property has also been impacted but, perhaps, not as calamitously as one would assume.
Yes, the number of willing buyers has dropped significantly over the past three weeks. And, the price that remaining aspirants are willing to pay has also dropped. That being said, I believe that the most important concept for homeowners to understand is that these facts do not portend a market correction. Why?
- There are still 88% fewer homes on the market today than there were seven years ago. Although the number of interested purchasers has diminished, demand still far outstrips supply.
- This imbalance will, more likely than not, remain the norm for the foreseeable future. Current homeowners probably aren’t interested in trading in their 2.75% mortgage rate for one that is likely to increase to 7% in the next few months. Concomitantly, during our COVID- imposed lockdown, a lot of money was poured into in-home offices, kids’ playrooms, inground pools, and exterior hardscaping. These improvements have created a hesitancy to suddenly move to a new domicile before fully enjoying the benefits of such large financial outlays.
- Unlike the housing crash that saw property assessments crater fourteen years ago, the fundamentals of today’s market are very different. Today’s homeowners are not absentee speculators. Instead, these are men and women who need a roof over their heads. These same deed holders have, unlike their predecessors from 2008, been qualified by certified lending institutions. They came to the closing table with actual cash in hand after having their credit checked. Additionally, the amount of the mortgage being collateralized is less than the value of the property. Yeah, I know that sounds rudimentary, however, one of the prime accelerants of the early aughts housing bubble was the fact that banks were loaning 105% of the value of the property! No wonder the economy crashed!
In short, the gains that were enjoyed over the past twenty-four months are, more likely than not, locked in. Will dwellings still sell over list price? I’m sure that a few will but it seems likely that the days of purchase offers being written $125,000 over asking are now a thing of the past; something, in your later years, to regale your friends with as they listen, for the hundredth time, about the days when…
In short, sellers are still going to enjoy the opportunity to capitalize on prices that have risen nearly 30% in two years. Congratulations! Meanwhile, buyers will be able to consummate a sale without having to engage in an arena crowded with sixteen other combatants. However, when they do prevail, they’ll have to finance at an interest rate double what they would have enjoyed six months ago. The solution? Buy now and refinance later. It may take a few years, but interest rates will eventually come down. Or, as a newly minted adage concisely states, “Date the rate. Marry the house.” The best way for anyone to begin the process of buying a house is to start by educating yourself. There’s no better resource than our remarkable partner, from Genesee Regional Bank. He can easily Majuwa Kowai-Bell be reached at 472-9345.
Where We’re Going
So, where are we headed? Well, this is quickly becoming an environment populated by “need” vs. “want”. Sure, we’d all like an in-home beauty salon and gift-wrapping room but is now the time to pursue such extravagance? Probably not. Instead, the buyers and sellers engaging in the transfer of title deeds are those who have to do so as a result of mandated relocation, illness, death, divorce, or financial insolvency. Meanwhile, the Federal Reserve is slated to raise interest rates again at the end of July and again in September. As a result, the market will slow and remain quiet throughout most of the summer. Eventually, two things will happen- 1) An increasing number of principals will enter the market as a result of pent-up need that can no longer be ignored and 2) Buyers will become accustomed to the new normal and will re-engage in their quest. After all, historically, a 7% interest rate is not unusual and certainly not cataclysmic. The earliest that I see this happening is the final quarter of this year, however, it may be the beginning of 2024 before we see any real resumption of activity.
Conclusion
Along the way, there are going to be some casualties. Did you know that there are currently 3,800 licensed agents selling real estate in the six-county region? Yep. Three thousand eight hundred! There are currently 978 properties available for sale. You do the math. Inevitably, there has to be a mass exodus of agents leaving the industry when they realize how challenging the profession is.
Thankfully, my team and I are ready. An economic downturn is a great time to grow and we’re doing just that. Our business has increased 12% year over year. We’ve just hired Garrett Gangarossa as our social media director who will be working hand in hand with our long-term marketing coordinator Marissa Horne. Ryan Strassner has done an incredible job as our go- to jack of all trades since we hired him several months ago. Additionally, I’ve got my eye on two new agents that I want to recruit. And, if I’m lucky, in the next few days, I’ll be purchasing a new building to house our growing enterprise. Meanwhile, our YouTube Channel is thriving and the podcast audience is growing. We couldn’t be doing any of this without you. As always, thank you! I’m truly grateful. I continue to wake every day with a bounce in my step and there’s not a minute that I don’t realize how fortunate I am to enjoy this remarkable privilege!