This real estate market has been pretty dizzying the past two years.
- Bidding wars with 30+ offers
- $400k+ over asking price
- Closing with zero contingencies
Especially in California (where I live).
But with rising interest rates and inflation, is this market starting to cool off?
Redfin, Mike Simonsen, and Bill McBride are my go-to resource for all things housing data.
So let's dig into some of their data to see what's going on.
The housing market has moved quite fast in the past two years and with rates increasing this has had an effect on households.
At the beginning of 2022, a 30-year mortgage was hanging around 3%, and in June we saw rates as high as 6.3%.
This has a major effect on your monthly mortgage payment if you haven't locked in a fixed rate 👇
New Home Sales Are Falling
Rising rates had an effect on new home sales in June 2022.
According to Redfin, roughly 60,000 home-purchase agreements fell through in June, equal to 14.9% of homes that went under contract that month.
Redfin Deputy Chief Economist Taylor Marr says,
"Rising mortgage rates are also forcing some buyers to cancel home purchases. If rates were at 5% when you made an offer, but reached 5.8% by the time the deal was set to close, you may no longer be able to afford that home or you may no longer qualify for a loan.”
Another interesting piece of data to look at from Altos research is housing inventory.
Housing inventory has been historically low recently.
This makes it difficult to meet housing demand for buyers. Which is partially the reason why the market was so bizarre this past year.
Inventory gained 3.25% at the start of this month and looks like it is beginning to normalize. That's 31% more inventory than last year at this time.
Source: Altos Research
The steep upslope in the chart above is increasing each week and we don't yet know if this curve will flatten.
Another Chart from The Washington Post shows that housing inventory is spiking in some parts of the United States.
Source: Washington post https://www.washingtonpost.com/business/2022/07/09/housing-market-slowdown-mortgage-rates/
As policymakers work to get decades-high inflation under control, this could have an effect on housing prices.
Rock-bottom interest rates in 2020 and 2021 helped fuel the surge in housing prices since the start of the coronavirus pandemic, which many housing experts are admitting this may start to slow.
Naturally, with economic slowdown, some people are asking if the housing market is headed towards another bubble.
But experts and economists believe this is not the case.
Why it isn't like 2008
Following the housing bubble in 2008, house prices declined nationally about 26%.
It continued to drop for years due to distressed sales, foreclosures, etc. Everyone was far too leveraged.
But there is one big difference between today’s Pandemic Housing Boom and the one that ended so badly more than a decade ago.
Generally speaking, we are not seeing the kind of speculation that was so rampant back then.
Shady lending practices, including little to no down payments, adjustable rate mortgages, and mortgages without documentation, are not relevant in the housing market we are seeing today.
Mortgage standards are nothing like they were the last time. Purchasers that acquired a mortgage over the last decade are much more qualified.
In the past few years, artificially suppressed interest rates undoubtedly pulled forward home price appreciation.
But just because prices have rapidly escalated since 2020, does not mean it is a bubble.
The fundamentals of high wages, record low inventory, and low-interest rates, all contributed to the craziness of the past two years.
We will just have to watch and wait. However, we can be fairly confident that we won’t see crashing price declines like in 2008.
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© 2023 Matt Calcagno
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