Let’s go with data over drama.
I’m hearing a lot of people giving me so many emotions and feelings without any actual data behind them. That’s when it gets a little dangerous.
Whether you decide to (or not) buy or sell a home, I just want to give you the data and information that you’re looking for; and hopefully, it will help you make clearer and more objective real estate decisions.
I know it’s kind of tough sometimes. So, I at least want to help you keep informed.
Here are some of the cities that are cooling down, according to Redfin’s data, and CNBC wrote an article about it for prospective buyers. They have the list of the 10 fastest cooling metros and the 10 slowest cooling areas.
Also, a little bit of good news, the interest rates dropped slightly to 5.3%, which is quite a surprise.
So, here are the 10 fastest-cooling US housing markets, according to CNBC:
Now, don’t mistake this cooling for the selling prices dropping dramatically. They are two very different things. Cooling just means there is a little bit of a slowdown because we are heading into a neutral market. There is a difference.
As we can see from the list, a lot of areas in California are cooling down. But what surprised me is the list of the 10 slowest-cooling US housing markets:
This got me like, “Why Albany?” I believe it’s kind of slow, but it makes sense. These are places that not a lot of people moved to during the housing frenzy. There wasn’t a lot of big change during the pandemic, so of course, there is less of an impact in terms of cooling housing markets.
So, if I’m an investor or a buyer, I would go into a place that is not cooling as much, right? If I wanted to make a “safe” investment, I would want to look at areas that already have more of a slow, neutral base. These areas aren’t going to change much over the next year or so.
CNBC says, “'Cooling’ doesn’t mean buyers will see price drops.” In their article, they write, “While growth may be slowing in some markets, experts still aren’t expecting significant price drops in most markets.”
One of those experts they quoted is Melissa Cohn, Regional Vice President at William Raveis Mortgage. This is what she says: “One of the reasons why we’ve had this frothy, overheated market is just a lack of inventory.” That is why Redfin’s analysis sees faster cooling in areas that have more inventory entering the market than others, such as Seattle (CNBC, 2022).
At the end of the article, CNBC says, “If you overbid on the property, you may be ‘underwater’ in the short term, meaning you owe more on the mortgage than the home is worth… [But,] that’s not a situation you necessarily need to rush to remedy.”
They added that “Experts generally recommend setting aside three to six months of living expenses. But some advisors suggest more for added flexibility.”
If you are buying or selling right now, you’re probably not going to want to buy or sell again immediately. You’re probably hanging on for the long-term. If you look at the trajectory of real estate over the last 10 years, it has grown a lot. I mean, look at what inflation has done to real estate over the last few months to two years.
This next article from Yahoo! Finance asks the question a lot of prospective homebuyers ask themselves and real estate agents: “Should I wait for real estate prices to crash before I buy a house?” And the article gives three reasons why the current housing slowdown is NOT like the 2008 crash.
If we go over what happened in 2008, lending practices were awful.
The article says, “The median credit score of newly originated mortgages was 776 in the first quarter of the year, according to the Federal Reserve Bank of New York. But nearly 70% of new mortgage holders had a credit score of 760 or more.”
Lenders and banks learned from the whole thing and made it even tighter for everyone to get approved for a mortgage. So, people who are getting loans need to be more responsible financially.
By “fine” this is what they mean: “Fortunately, mortgage forbearance programs allowed struggling borrowers to pause their payments until they could get back on their feet. And it worked: by the end of March, the share of mortgage balances 90-plus days past due remained at 0.5% — a historic low.” (Source: Yahoo! Finance)
If you compare it to 2010, according to the article: “…when delinquencies on single-family homes hit a 30-year high of 11.36%, the rate was just 2.13% in the first quarter of 2022. On top of that, rising home prices has translated into increased equity for homeowners. … That’s a 34% increase and more than $207,000 in additional available equity per borrower.”
So, if you want to sell, go ahead and sell. Chances are pretty high that you’re not upside down.
The article quotes Dave Ramsey as saying, “It’s not always as simple as supply and demand — but it almost always is.”
I don’t always agree with everything Dave says, and I don’t even fully buy into what he’s saying that for the next five years, the housing market is just going to continually grow and not have a down year. I don’t know what will happen in the next year. I know we don’t crash.
We’re seeing prices cool down. There may be a slight decrease in prices regionally, but overall, if you look at this in a five-year span, yes, we’ve grown, but I don’t agree 100% with what he is saying regarding that.
But I agree with this part of the article:
Ramsey says the major issue in 2008 was that there was a “tremendous oversupply because foreclosures went everywhere and the market just froze.” The crisis wasn’t down to the economy or interest rates; it was “a real estate panic.” (Source: Yahoo! Finance)
The article also says, “In comparison, now there’s a huge demand and a shortage of supply. But the Federal Reserve’s efforts to dampen demand by raising interest rates are starting to work. And new housing is starting to slowly come on the market as well. What Ramsey says we’re seeing now is a softening in the rate of increase of prices, but he doesn’t anticipate they’ll go down like they did in 2008.”
I’m not sure, by the end of this year, where we’ll end up, but I am sure it isn’t a crash.
Now, here’s Redfin’s recent housing market update that says “Balance Is Returning to the Housing Market as Competition Eases.” This was published on July 7th, and they had a list of leading indicators to watch out for.
Leading indicators of homebuying activity:
(Source: Redfin)
In a previous YouTube “Live” I did on my channel, I went over why interest rates are falling, and that’s because more investors who jumped into the stock market decided to buy Treasury bonds because of growing fears of a recession. Bonds are historically a “safer bet” than stocks during an economic downturn, and who doesn’t want to invest in something stable during a recession, right?
Since mortgage rates are tied to the Treasury bond, with more investors coming in, the rates are going to come down. So, we can expect mortgage rates to go down more if they ever formally announce that we are in a recession.
The term “homes for sale” on Google is significantly down, which is important to note. When interest rates went up dramatically, fewer people could afford homes, and it also affected the demand for home tours and other home buying services. These may change if the mortgage rates keep on dropping.
And the most important leading indicator is mortgage applications, which are down 17% from a year earlier. Keep an eye out on those for the next couple of weeks or months as well.
Now when you look at all that data, some of you might say, “Those numbers are old. What I want to know is what’s happening next.”
I want you to pay attention to the actual data: people still buying, supply and demand, and actual homes for sale. What you’re seeing right now is that people are still buying homes. Interest rates dropped to 5.3%. Experts were saying they'd go up to 7% or 8%, and people were freaking out, saying “We have already crashed.”
Yet, that isn’t what happened.
Where we’re heading next is just a neutral market. If we see interest rates drop dramatically—we saw the Fed talk about this four weeks ago, saying that home sale prices are going to continue to go up until the end of the year, and they promised to try and lower the mortgage rates by the end of the year—with that in mind, we start seeing what’s happening.
We'll get a clearer picture of what’s really happening in the real estate market around September and October, once the summer demand (real estate is cyclical) creeps down a little bit more. Then, we will see how much the market is actually cooling. Because in a normal cycle, that means we will see the housing market start picking back up again by March next year.
A 5% increase year-over-year—what does this look like in a neutral market? Are we going to end up higher or lower? Where are we going to be this year? What’s next?
