The experts say actually no, we’re not, although experts agree that 2023 may bring a mild recession.
After more than a year of skyrocketing demand of unsustainable peaks, there is a slight cooling trend in the housing market. Realtor.com now forecasts a 6.7 percent decline in house sales in 2022, due to the increasing cost of purchasing a home: that cost has risen to 6.6 percent, up from 2.9 percent in 2022. A major factor: in March 2022, the Federal Reserve began to quickly raise interest rates to offset high inflation. This action pushed the 30-year fixed mortgage to upwards of 6 percent, up from 2.75 percent in the autumn of 2021, according the Marketwatch.com.
Double-digit appreciation is still the norm, and the National Association of Realtors reports that prices of existing homes soared 14.3 percent from May 2021 to May 2022, and topped $400,000 (to $424,405) for the first time ever. Housing prices are up 45 percent since the pandemic began, according to this report.
There’s (still) a critical market imbalance: not enough inventory. Why?
The hike in interest rates makes current homeowners less likely to trade in their existing lower-rate mortgages, further reducing the number of homes currently entering the marketplace. The result: the number of homes for sale are still at historic lows.
The pace of single-family construction and building permits have both declined in 2022, meaning fewer new homes entering the market. In 2021, more than 90% of builders reported delays and material shortages, contributing to impossibility of meeting the current need for 1.5 million homes. Prices for appliances, framing lumber, oriented strand board (similar to plywood and particle board) and other critical building supplies have risen 35.6 percent since the pandemic began, with no sign of stopping, according to BusinessInsider.com.
Add to this that thousands of construction workers lost their jobs during the past two years doe to COVID concerns, triggering a major labor shortage which adds to delays. According to the Associated Builders and Contractors association, almost 650,000 new workers are needed to meet the building demand. This slower pace of construction is likely to keep home prices high for the foreseeable future.
But is there any real threat of a market crash, a-la he Great Recession of 2008? Not so much.
For buyers, the remainder of 2022 will continue to be a seller’s market, so:
BE REALISTIC. This imbalance shows no sign of reversal, and most experts forecast higher home prices throughout the rest of 2022. These increases according to Fannie Mae will rise by 10.8% in 2022.
BusinessInsider.com, advises that buyers of median-priced homes should anticipate monthly mortgage payments than are more than $400 higher than they were the same time last year. Also keep in mind that banks are tightening lending guidelines, FICO score and down payment requirements have increased, and lenders are scrutinizing job-longevity more closely than ever.
Yes, 2023 looks a bit better, but prices will still climb: Fannie Mae predicts 3.2% increases next year, according to Forbes Advisor. Special tip for house-hunting Millennials: prices will not (ever!) plummet to anything resembling what your parents paid for their home
DON’T PANIC. Avoid FOMO. Resist the urge to buy impulsively, simply because you know that inventory is scarce. Investing in a house that you don’t truly adore, not to mention buying a house that you can’t afford, triggers mega-buyer’s remorse. Instead, take a hard look at your personal finances and long-term economic stability.
HOW DO YOU ANSWER THE BIG THREE?
1: Are you debt-free?
2: Do you have an emergency fund to cover 3 – 6 months of expenses?
3: Will your mortgage be 25% or less of your monthly net income?
Unless you can answer these questions with an honest and resounding “Hail to the YASSSS!!!”, sit tight and keep watching the market. If the answer to all of the above is affirmative, you are in a solid position to buy.
Whether buying, selling, or simply considering, consult with one of our team members for expert advice. We can curate a list of available properties which match your financial needs as well as your preferences regarding location, school district, etc. For sellers, the world is still your oyster, although the gradual slowing of sales may mean that there’s less likelihood of a bidding war driving up your sale price of your pearl (home). If you’re ready to list your home, we can closely examine the status of properties similar to yours and make recommendations for enhancing the ultimate market value of your property.