With everything that has happened, this is the burning question on everyone's mind. Is buying a house in 2022 a good investment?
I came across an article that asked the same question, and it appears that the majority of Americans believe the answer is no.
This is an article by CNBC titled “More Americans than ever say it’s not a good time to buy a home.”
According to the article, “By age, about a quarter of young adults aged 18 to 34 say now is a good time to buy, down from 42% a year ago. For those aged 35 to 54, 28% say the market is favorable, down from 52% a year ago. Older adults are slightly more positive, with 35% saying now is a good time to buy, down from 61% in 2021.”
That is a significant drop in the American population of different ages who think it is a good time to buy real estate this year.
It looks like the older adults are more optimistic about it than most of the other age groups, probably because they have just a little bit more experience.
The article ends with this: “While Americans may be pessimistic about the current state of home buying, more than ever think real estate is the best long-term investment. About 45% choose real estate, while 24% pick stocks, and 15% say gold. Real estate used to trail gold when Gallup first asked this question in 2011, but since 2014 it has been the winner.”
When it comes to real estate, more people are staying in their homes [longer]. There was a statistic by the NAR that said nowadays, people stay in their homes for an average of 13 years.
It's important to look at the facts before deciding whether it’s worth buying a home this year.
I'd like you to look over the data and interpret it for yourself. Don't let the media tell you what you should think.
I want to assist you in making informed real estate decisions by showing you what is currently happening, both the good and the bad.
So, let’s dive into the data courtesy of our friends from Keeping Current Matters. I’ve compiled it for you, so you can check out the graphs, too.
Check out Keeping Current Matters; they have some of the most up-to-date information because they collect it from a variety of sources.
One such source is Freddie Mac, which says mortgage rates will continue to decrease.
Keeping Current Matters quotes Sam Khater, Chief Economist from Freddie Mac, who says, as of May 19th, “Mortgage rates decreased for the second week in a row due to multiple headwinds that the economy is facing. Despite the recent moderation in rates, the housing market has clearly slowed, and the deceleration is spreading to other segments of the economy, such as consumer spending on durable goods.”
The rates as of May 19th are more or less still the same at 5.1% for the 30-year fixed rate, 4.31% for the 15-year FRM, and 4.2% for the 5-year ARM.
From December of 2021, the mortgage rates were at 3.1% and have been skyrocketing steadily in the course of four months. But since April 2022, it has started to plateau at around the 5% range.
The financial segments in the US have already taken into account the times the Fed will meet to raise the rates, and from the real estate side, they have already baked the interest rates into the mortgage rate increase.
This means mortgage rates won’t jump up dramatically every time the Fed raises rates. This gives us an overview of where the rates are and where they are supposedly going.
Keeping Current Matters also has data from Freddie Mac on the current mortgage rates compared to the last five decades. In the 70s it was, on average, at 8.86% and skyrocketed to an average of 12.70% during the 80s. It went back down to an average of 8.12% during the 90s, 6.27% for the 00s, and 4.09% during the 2010s.
The one thing to keep in mind, though, is that home prices have also increased over the decades. So, if we ever get to rates in the 10% to 12% range, we will be in big trouble.
Some people are scared that mortgage rates will jump up the next time the Fed raises the rate, but mortgage rates are tied more closely to the 10-year Treasury bond than the Fed rates.
Keeping Current Matters also quoted Danielle Hale, Chief Economist, at Realtor.com, “The housing market is at a turning point… We’re starting to see signs of a new direction, but the ball is still in sellers’ courts in most housing markets.”
We’ve been talking about this for the past two months now. We’re seeing some areas decline a little bit, but not necessarily the decline that could be interpreted as a housing crash. But it is important to keep an eye on what is happening both nationally and regionally.
In some locations, it is still a seller's market, so if you're looking to buy and believe you'll get a great deal, don't count on it. You’ll still see multiple offers.
The data Keeping Current Matters got from Showing Time is a great example. In 121 markets nationwide, you still see double-digit home showings per listing. The data is from March 2022. It has dropped a little bit, but there are still a lot of showings—still in the double digits.
We also know there is less inventory. Even though inventory has come up a little bit - more so in the categories of new inventory, new sales, and new housing - the active listings on MLS haven’t gone up significantly. And the problem is that the demand is still there.
This is why, in some parts of the United States, potential purchasers are shown a variety of houses in order to increase their chances of having their offer approved.
Keeping Current Matters also has data on the seasonally adjusted annual rates of existing home sales from NAR. This is all of the existing home sales minus the new construction. In 2021 we had 6.1 million and in April 2022 it was 5.6 million—still above the pre-pandemic demand, and that’s without new construction.
And as for new construction, as you can see from this article by Trading Economics, it went down from 709,000 in March 2022 to 591,000 new homes in April 2022.
In the real estate market, the data reveals that there is nothing to be concerned about just yet. Of course, these figures are a month old on average, and in some cases, a couple of weeks old. Even yet, understanding the data is critical if you want to make well-informed decisions based on facts.
May is almost over, so we will know the average days on market for this month, but in April 2022, the average days on market was 17 days, nationally.
The national average of offers nationwide is 5.5 offers. This number might dip a bit since we saw a softening of the market this month with new construction.
The biggest questions, in general, are “What’s happening with real estate? Is there a recession coming? If so, how does that recession affect real estate?”
These are all important questions, and Keeping Current Matters shares the same stance as me, that a recession doesn’t necessarily equate to a housing crisis.
They quote Realtor.com saying, “Experts don’t believe the market is in a bubble or a crash is in the cards, like during the Great Recession. The nation is still suffering from a housing shortage that has reached crisis proportions at a time when many millennials are reaching the age when they start to consider homeownership. That’s likely to keep prices high.”
Another thing that not a lot of people take into consideration is that people who own a home would think twice about selling their homes. Why would they sell and move to a new house and take on a new mortgage when the rates have gone up around 5.5%? Especially if the homes they currently own are at 2.5% to 3% rates, and they have no pressing need to relocate.
The housing shortage is not meeting the high demand, and despite the mortgage rates jumping up to the 5% range, it is still affordable for a lot of people. Obviously, all this might also change depending on the developments in unemployment issues and the state of the economy.
According to this statistic from Trading Economics showing the unemployment rate over the last 20 years, since the Great Recession, unemployment has steadily gone down. It spiked when the pandemic hit, but it has gone back down significantly.
This is important to note as it is a leading indicator of what could possibly happen if things start to go sour. But right now, everything looks [relatively] great in real estate.
Finally, a recession does not equate to a housing crisis, according to statistics obtained by Keeping Current Matters (from CoreLogic and The Balance).
When looking at the changes in property prices during the country's last six recessions, the 1980s saw prices rise by 6.1% (1980) and 3.5% (1981).
In 1991, there was a 1.9% decrease in home prices, but home prices went up 6.6% during the recession in 2001. In 2020, home prices went up 6% during the recession caused by the pandemic.
The only significant drop was the housing crash in 2008, with a 19.7% drop in home prices. It is a very big exception in which everything tanked and all the fundamentals were broken.
As CNBC said, long-term, especially now when more people are staying longer (up to 13 years) in their homes before they sell, real estate is still a great investment.
Don't second-guess yourself if you need to buy a home because you need to relocate. Especially if you plan on staying for an extended period of time. Real estate has always risen in value according to the cycles.
Don't believe what the media (some, but not all) says about a housing crash.
There isn't, based on what we've seen.
As a result, pay attention to the numbers.
Talk to a local real estate agent if you have questions—they have all the information that you need. Find somebody who has the experience and knowledge that can help you.
And at the end of the day, I am also here to share what I know and what I find during my research. If you want, you can reach out to me on any of my socials. I am always happy to hear your thoughts and answer your questions to the best of my abilities.