As we wrap up the first half of 2022, I’ve been having a lot of conversations with clients about the market right now so thought I’d provide a quick update of what we might expect in the next 18 months.
The above graphic shows that Fannie Mae (one of the biggest loan purchases in the country) is predicting about an 11% decline in existing home sales from 2022 to 2023, and that is on top of a 13% decline from 2021 to 2022 – this is the current pace that we are on through the May closing numbers.
Home prices ARE NOT expected to go down with the RISING interest rates, because there will be LESS homes for sale this year and in 2023. Yes, the increased rates are pricing some buyers out, making others renew rental leases, while some are waiting to see what happens with the market. Demand has come down, but not enough to tip the scales into a buyers market. For good quality homes, in the desirable towns inside the 95 belt there is still plenty of interested buyers.
At the same time home owners with a mortgage rate at 2-3% are NOT listing their homes because they don’t want to get a new home with the rates in the 5-6’s. Other home seller’s see “Inflation out of control”, “Recession looming” and similar headlines making them reconsider listing their properties for the time being. Lastly, there is a portion of the home market that will be not coming back for sale for quite a while (more on this below). All this leading to fewer total transactions.
The federal reserve already said they plan on more rate hikes this year to try and curb the inflation, so I wouldn’t be surprised if rates got into the 7’s as this year went along, while the prices will continue to appreciate, but not as fast of a pace as the last 18 months.
Historically late August and Late Sept-Mid October are the best times to buy in terms of Greatest supply, and smallest amount of buyers shopping. The overarching point is that most economists/experts I follow predict rates to rise more this year and into next year, while home prices increase at a slower rate, so overall the cost of home ownership increases the longer one waits to buy. From a seller/home owner stand point there is no need to fear your home decreasing in value, however listing price, marketing, and maximum exposure are even more important now compared to Jan-April of this year due to the decreased buyer demand. If thinking of selling, I would temper expectations and there is a chance your home won’t sell for what your neighbors did just a few months ago.
The good news is that cycles come and go, and the rates will come back down in the future and you will be able to refinance your home to a lower rate (if you are thinking of buying in the next 18 months). There is a very big difference between today and 2008-2009 (the crash) because back then mortgages were given to people who shouldn’t have qualified, and then in turn couldn’t pay them.
Today’s buyers are very well qualified, home owners have A LOT of equity in their homes so they are not in danger of going under water, and you have large institutions buying single family homes in bulk with plans to hold long term, rent them out, and not sell for the foreseeable future. All of this to say, prices only come down when there is more supply than demand, and I don’t see that happening anytime soon.
Jan-March is historically the most difficult time to buy because despite rates, inventory, etc, everyone wakes up Jan 1st, opens up Zillow, Redfin, etc and says “this is the year we go from rent to own, this year we downsize, this year we upgrade, this year we move here or there, this year we get better schools” so the demand is very high and supply is very low.
If you have any questions, I can always discuss your specific situation in more detail. If you feel this information can be of value to someone you know, definitely forward it as the headlines we see on the news are not necessarily in line with what I think will happen.