Source: Fortune —
Back in June, Fed Chair Jerome Powell made it clear to reporters: The Pandemic Housing Boom was over. Heading forward, he said, spiked mortgage rates would push the U.S. housing market into a slowdown.
“We saw [home] prices moving up very very strongly for the last couple of years. So that changes now. And rates have moved up,” Powell told reporters in June. “We are well aware that mortgage rates have moved up a lot. And you are seeing a changing housing market. We are watching it to see what will happen. How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure.”
“I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”
It’s clear the Fed’s “housing reset” will give homebuyers more options (i.e. rising inventory) and more breathing room (i.e. fewer bidding wars). The question mark—which Powell acknowledged in June—is will it push home prices lower? Historically speaking, home prices remain sticky until economics forces sellers’ hand.
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“Housing market sees troubling sign as mortgage lenders fail
Aug 24, 2022
Some independent mortgage lenders feeling the brunt of increased lending rates are declaring bankruptcy…..”
That’s the caption in this morning’s news from one of my reads. When you see this kind of information, a person can’t help but feel the negativity looming in the market and the industry, and in particular their personal economic outlooks.
Two things you should recognize in a report like this.
First, this type of reaction is typical at this point in these real estate cycles. There are a plethora of loan origination companies that are seeing their “profits” dwindle, and rather than be in it for the long term, only see one option, and that’s to save their personal bank accounts, and set everyone on their team loose.
So, you’re gonna have a certain percentage, the fly-by-nighters”, jumping ship. That’s a real shame, really, because it costs people their jobs, and it sends an incorrect message to the public.
The second is to actually take a look at what is happening out their in the market. What’s happening is simply an adjustment. Although it was abrupt and less than well paced, an adjustment just the same.
Let’s take a look at what’s really happening in a large percentage of the market in the real estate industry.
Rates are up….yes. However, buying is still strong. Has the inventory increased?….yes. However, this is due to the affordability impressed on “finance” buyers and this particular time of year.
I’ve been here for 38 years, and I have never seen the beginning of a school year NOT slow down the market. People don’t want to buy a home and have to be moving right in the middle of starting school…..no more than they want to move on Christmas day.
Interest rates?….yes, they’re higher. But, are they outrageous? …No. However they do create a variable that certainly kills the hopes and dreams of buying the “Bigger house for the money” for some.
Building is still going on at a record pace, and some building costs have declined, although not enough, but are coming down.
Cash buyers in the market are still snatching up multiple properties because they RECOGNIZE where this is all going in a few years.
And, where’s that, you may ask?….To a further increase and/or, at least, stability in pricing in the future.
That’s right, you read that correctly. The prices are going to continue to go up. Maybe not tomorrow….maybe not in this year. But 3-5 years from now, home prices will NOT be as low as they are right now.
You’re going to see a dip, but only a moderate one this year due to the election, and then next year, you’ll see the market attitude change back to a fairly aggressive buy attitude.
The difference will be greater inventory. So, you won’t see 20% annual value increases, 18 offers on a single home (every home), and you won’t see realtors sitting on their keesters, saying, “sign here”, and then heading to Bora-Bora until the closing check comes in.
You will see a reasonable balance in buying and selling, and you’re going to see reasonable people recognizing that 5 and 6% interest rates aren’t the end of the world, for the time being, and finance buyers will get busy again, which will fuel the trend that will eventually create value increases and a resurgence in the buy-up markets.
But, don’t hear what I’m saying. Sit back and wait for those 2010 prices to come back before you buy…..you do, and you’ll find yourself a forever renter.
Ive been here for almost 4 decades, and I’ve seen these trends come and go. We’re not going to have another 2008 meltdown like before. Just an adjustment.
I’m Rex Dungan ,
Certified Appraiser, Real Estate Broker, Appraiser General USTC
Foolish leaders have foolish followers. Blue States have shaken their economic foundations to the core by passing laws of defunding the police -crime to skyrocket with fewer police, no arrests and implementing regulations and laws that economic justification can not sustain. For the wise the consequences are plain as day and many are fleeing for Red States. Unfortunately, the same who promote the illogical philosophies and untethered off the rail ideas of life and economics of Marxism, are. moving to Red States who have a culture based upon time proven values of God bring their wrecking ball ways with them and commence burning down their inheritance that was fought and died for by our forefathers. Truth is not mocked will always prove out. Wild, unaccountable spending will collapse the entire nation soon unless those who live by the boundaries of respect for person and property are installed back into our nation to bring stability. But most do not want to hear the truth. They hate it and everyone who follows it. We the people are not holding our leaders accountable and have allowed our elected officials to enrich themselves far beyond we hard working people of integrity. Economy is based upon fundamentals of value and service being traded that add length, value and quality to life for the trade of one to another. Without knowing or understanding of truthful history, the nature of mankind is blindly walking from one disaster to the next. It is the same for economics. Very predictably if you abandon these fundamentals disaster and destruction follow. With no embraced truth there can be no trust or dependability. May the hunger for both truth and wisdom arise in our nation and an opening of blind eyes and deaf ears occur by the grace of God or such a collapse will occur that will throw our world into anarchy and rule of tyrants.