Let’s talk about what’s happening in the real estate market now. I’ve got two articles for you this time, showing what the banking industry says the real estate market will shift in the next few months.
This first article is by Forbes, and they raise a few points about what is happening with the real estate market right now, that is important to pay attention to.
The first one, according to Forbes, is “Interest rates are making mortgages seem unaffordable.”
That is true, for the most part, what we are seeing is, across the board the mortgage rates are contributing to the unaffordability issue that impacts the real estate market.
The article says: “With mortgage rates going up from 3.05% to about 6.92%, the monthly mortgage payment on the median asking price home has gone up 51%. A mortgage payment of $1,698 is now $2,559 each month.”
That is a massive increase, right?
Next, Forbes says, “Home prices are coming down.”
“Economists at Fannie Mae (FNMA +0.3%) have predicted that real estate prices will drop by an average of 1.5% nationally. This is a pivot from the original prediction of a 4.4% home price growth for the year,” the article continues.
Companies like Moody’s, Zillow, and Goldman Sachs also predict a drop in national home prices in the next year of as much as 7% on average. But what I want you to pay attention to is this: There’s a difference between listing prices dropping and actual sales prices dropping. That is, sellers dropping their asking price to make the homes more competitive and appealing to consumers, versus the home sale prices, actually dropping and the number of homes actually selling. Depending on where you are, because real estate is regional, homes are still selling above the listing price.
When people, in general, hear that “there is less activity in the real estate market,” people instantly think that home sale prices are dropping dramatically.
Third, according to Forbes is, “Home sales are cooling down.”
“Research from Redfin identified some important real estate figures that indicate how home sales are declining:
So, with all that, Forbes asks the important question that is on everyone’s minds: “Will the real estate market crash?”
This is what they say, “According to Google Trends, search results in the U.S. for ‘real estate market crash’ went up 284% in September. There are many folks concerned about the possibility of a crash as numerous people are watching to see how the economy reacts to rate hikes.”
But the bottom line is this, according to Forbes, “Higher interest rates and overall uncertainty in the market make all of us nervous about the real estate market.”
“It’s difficult to determine what will happen next as we wait to see the results of these constant rate hikes. However, we know that bidding wars seem to be a thing of the past as housing prices are slowly softening,” Forbes adds.
Basically, what they are saying is, “Well, we don’t really know what is going to happen.” And I love that outlook because it’s really on a day-to-day basis at this point. The Fed is looking to increase the rates again on November 2nd, and that will certainly have an effect on real estate as well.
Let’s take a look at this second article from CNN.
This is an overview of what’s in the article: “What’s happening: JPMorgan (JPM) reported that third-quarter home lending revenue plunged 34% from a year ago, and Wells Fargo logged a drop of 52% over the same period. The declines were due primarily to a spike in interest rates leading to a slowdown in demand for mortgages. Citigroup (C) and Morgan Stanley (MS) also reported that mortgage loan growth was moderating.”
According to CNN, “Home sales declined for the seventh month in a row in August, and sales of existing homes – which include single-family homes, townhomes, condominiums, and co-ops – were down 19.9% from a year ago, according to a report from the National Association of Realtors.”
That is on sales of existing homes, and we saw that it was down significantly.
On the other hand, home prices are a slightly different story. Not to say that nothing is going to happen there, but check out what CNN says about home prices.
“Home prices are still on the rise, but they’re beginning to ease. Prices grew 15.8% in July from the year before. That’s a smaller jump than the 18.1% growth seen in June, according to the S&P CoreLogic Case-Shiller Index. "The 2.3 percentage-point difference between those two months is the largest deceleration in the history of the index,” says the article.
Prices did come down just this past month, but it wasn’t that big. So, the determining factor is going to continue to be the mortgage rates. If the rates continue to remain high, or go up, their effect on the real estate market is going to continue to be felt in the next few months.
But CNN highlights an important point.
“This isn’t 2008: Market conditions are very different than they were in 2008. Analysts are telling homebuyers and investors not to panic. And housing inventory remains low, which prevents a crash in price as demand tempers.
“‘There was a housing shortage of around 5 million homes before the onset of the pandemic. That shortage is not going away soon,’ said Lawrence Yun, chief economist with the National Association of Realtors trade group, in a report last month.” (Source: Forbes)
Those are the key things you need to be paying attention to.
But what do you think? Based on what you are seeing, especially in the region you are in, where are we heading? I like seeing both sides of this; the optimistic side and the “the sky is falling” side. Obviously, I am in the middle, leaning more towards the optimistic side, because I always look for opportunities, even when the situations are tough.
I want to know what you think. Tell me what’s happening in your world and tell me what you are seeing that I may not be seeing. But from where I am looking, it is too early to tell. At all points, we are seeing prices go down, and it is going to continue for the next few months. But a crash? I’m not seeing it.
So, my advice to agents, focus on the people who already love you and want to do business with you. Continue looking for opportunities. And if you are buying or selling, if you need to buy/sell now, go for it. Get an amazing real estate agent to help you navigate the current turbulent market in your specific area. This is very regional, and your agents are the best people to have on your side.