Let's talk about common sense in these topics: real estate, the housing market 2022, the rumors about the housing crash or the housing bubble, inflation, and recession.
Today, I’m going to show you some statistics and numbers, and what the pros are saying.
But first, if you’re asking how am I a reliable source of information regarding common sense issues in the real estate market, let me present my credentials.
I’m still active in real estate, and I’ve been in the top 1% (on and off) of the real estate world. I also run the largest community of real estate agents in the world, with over 300,000 agents. I get to talk to thousands of people to understand how the real estate market is doing locally (because real estate is very regional and niche).
Our experience over the years of being actively great at what we do is what I’m bringing to you.
I’m not here to bring you news of doom and gloom, I’m here to bring to you some common sense in real estate.
There are a lot of people out there who just can’t afford prices. This is why the Fed raised the rate to start making things more affordable for people.
Sometimes we overlook that aspect. We're concerned about rising interest rates and how the Treasury yield is linked to mortgages, raising them. And some individuals believe that because interest rates are rising, housing values will fall. Well, not so fast. The challenge is there is a massive lack of inventory in real estate right now.
First is the supply and demand curve. The basic premise of the law of supply and demand is that prices are affected by the product’s availability and its appeal to consumers, according to Investopedia. The supply and demand curve shows us the point where the market is at equilibrium.
Since the demand is still high, our established problems in the real estate market are the price (affordability), and supply (inventory).
And since we’re talking about things that move together, let’s take a look at mortgage rates and treasury yields, and why they are somewhat tied together.
According to MCT, “Historically, the 10-year U.S. Treasury yield has been considered a key benchmark for mortgage rates. However, mortgage rates are not based on the 10-year U.S. Treasury note (as is commonly believed). Fixed mortgage rates and Treasury yields generally move together. Why? As a fixed-rate asset, mortgage-backed securities (MBS) are in direct competition with Treasury instruments for investor money.”
Now, let’s take a look at what is happening in the world right now.
Fox Business news released an article titled “30-year mortgage rates hold steady for 4th straight day | May 6, 2022.”
It shows the trend in mortgage rates until recently. Now, some people might be wondering, “I thought the mortgage rates are gonna skyrocket because the Fed raised rates by 0.5%?”
The cool thing is no, that didn’t happen. And here’s why. You are going to want to pay attention to this. Because this is going to affect us for the rest of the year.
In an excerpt from the article from Syracuse, “Lawrence Yun, chief economist for the National Association of Realtors, noted that the rate on the 30-year mortgage has risen far more this year than the federal funds rate. ‘This implies that the market is already pricing in around eight to 10 rounds of [Fed] rate increases this year,’ Yun said in an email. ‘If inflation turns higher, then the Fed will need to be even more aggressive, and this will further bump up mortgage rates.’”
That means, with the rate already having gone up dramatically just in a span of like a month and a half, they already played into [the fact] that the Fed is still going to meet a few times this year, and they are probably going to raise the rate.
Some people thought the mortgage rates would skyrocket because they didn’t know that part. That’s why it’s important to pay attention to the little nuances.
Redfin released an article where their chief economist says prices will remain high despite a little dip in demand.
They go deeper into the topic in another article titled “Housing Market Update: More Sellers Drop Their Prices, But Buyers Find Little Relief.”
According to Redfin, “pending home sales were down 4% year over year, the largest decrease since mid-February.”
Now, people read this and forget to look at the rest of the details. You should be careful to avoid confirmation bias. Let’s look at this.
In the same article, Redfin says, “New listings of homes for sale were down 6% from a year earlier, and have been down from 2021 since mid-March. Active listings (the number of homes listed for sale at any point during the period) fell 18% year over year.”
People who own homes are reluctant to sell because the mortgage rates they might get if they move may be higher than what they are currently paying now.
Redfin identified this problem and said “Hey, not so fast. The market is probably not gonna drop as much as you think. We’re still thinking that it may go up even a little bit more. Why? Because we’re still going to have a lack of inventory.”
This is where we use common sense.
Homeowners are reluctant to sell, homebuyers can’t afford it and are being outbid by investors buying homes (which is 18% of the national market). Think about the repercussions of that long term. Because that means we’re still going to have an inventory challenge.
At the end of the article, Redfin says, “Homes that sold were on the market for a record-low median of 15.5 days, down from 21.2 days a year earlier. [and] A record 56% of homes sold above list price, up from 47% a year earlier.”
These are the numbers that a lot of people aren’t showing you. And this is why Redfin’s chief economist claims that despite signs of the housing market cooling, prices will remain high. Because despite more houses being sold above the list price, homes are disappearing from the listings faster.
And according to NAHB, “latest estimates show that, nationally, 87.5 million households (roughly 69% of all U.S. households) are already unable to afford the median-priced ($412,505) new home.”
We have an affordability problem and an inventory problem.
And when we match both together, the Fed is trying to solve it, but it’s just not doing it fast enough.
So, if you’re worried about where the market is heading, if you use the data I’ve shown you so far, know that prices are going to continue to go up.
Current Matters shared an infographic, about this year’s market forecast. There are three important things worth noting:
We already saw Redfin say the same thing. But home prices are projected to rise by an average of 9% (as estimated by seven different companies).
They are going to go somewhere between 5.0% to 5.7%. Some people say they’ll even end up at the low 6%.
We saw that. And some estimate between 5%-10% rise by the end of the year.
While doing the research, I came across a great article by Deseret News that says, “It’s a classic supply versus demand issue. There just simply aren’t enough homes.”
I want that to stick with you. Because as you go and listen to the news in the next few days, as you watch YouTube and browse through social media, you’ll be bombarded by the housing crash, and housing bubble.
But, remember, it is an affordability challenge and an inventory problem. And because inventory isn’t rising fast enough, and there are fewer active listings, we’re going to continue having this issue.
Unless interest rates rise dramatically past where they are at and some other crazy things happen, we’re going to have the same market we’re in. It will continue to rise and we all know that real estate is not only regional, but it’s also seasonal. We’re now into May, and typically, homes go up and a lot more are sold. The demand is even higher.
For now, if you’re gonna go and buy, go ahead. Nothing’s gonna happen. Just make sure that you do your homework and that you have an amazing real estate agent locally to help you out so they know the market.
And if you have questions, ask.
