Mid -June 2022 Market Update
By LINDSAY FRICKS
As your trusted real estate advisors, it’s important to make sure you have the latest and greatest information possible. We don’t typically do a mid-month market update, but I feel that it was imperative to get in front of the rapidly changing market. If you’ve been watching media outlets, then you’ve been inundated with doom and gloom around the economy. Change is hard and uncomfortable, but the reality is that there is no financial mechanism that goes up indefinitely. Markets expand and contract as a natural part of the economy. You can choose to become overwhelmed and defeated, or you can choose to accept that change is inevitable and educate yourself on what’s to come.
Right now the economy is reacting to high inflation created by the massive amount of money dumped into the economy as a result of COVID relief funds and international turmoil. This is a purposeful response by the Fed that is intended to slow down the economy and get inflation under control. The Federal Reserve let the economy run red hot for way too long before taking action and now we are experiencing the pain of their delayed decision making. To many, this feels like we’ve locked the breaks and as a result have a bad case of whiplash.
I’m not going to attempt to explain all the ins and outs of federal monetary policy because it’s quite complicated, but I want to zoom into the local housing market and discuss how the changes being made at a national level are impacting our local real estate market. The increase in the Federal Funds rate indirectly impacts mortgage rates. The impact of higher mortgage rates means that housing affordability and monthly payments rise. The result of higher rates is that buyers and investors are more reluctant to purchase homes. We can see that manifest by more homes staying on the market and negotiating power beginning to tip back in favor of buyers.
We are seeing this play out locally with an increasing supply of homes for sale and homes staying on the market longer than they have over the last two years. For me, this actually feels like good news because the market we’ve been experiencing has been nothing short of complete insanity. We now have just over 11,600 homes available on the market. That’s just slightly over where we were two years ago with 10,095 houses listed and, at the time, nobody thought it was a “slow” market. In a balanced market, where supply and demand are equal, we have about 6 months of supply of homes. As I type this, we have 1.3 months of inventory. That is still far from balanced, but the market is headed in that direction.
The big question you’re all asking is “will prices fall?” The answer is quite possibly “yes”. While nobody likes their home value to drop, if you thought that your home value was endlessly going to rise by 20-30% each year then you’re being a bit naive. Like I said earlier, all markets fluctuate up and down over time. History tells us that even though we will have downturns, average home appreciation will be 3-5% over the long run. Real estate is, and always will be, the greatest long term investment for the vast majority of people. If you don’t plan to own a home for at least 3-5 years, then it’s probably best to not purchase till you’re ready for that commitment.
If you’ve lived in a home that doesn’t quite work for you over the last couple years, this change should be a sight for sore eyes. You can still sell for a significant profit and now you have more homes to choose from and way better terms on a purchase. In fact, we are now seeing sellers entertain contingent contracts so you’re not forced to sell your home before you know where you’re going to live next. Yes, your interest rate will likely go up from your current home’s interest rate, but there’s a great chance we will see a dip in interest rates again in the next 6-18 months that will allow you to refinance your monthly payment back down.
If you’re a buyer who has had a difficult time competing over the last two years, now is your time. Even though interest rates are higher, by owning a home you open up the opportunity for tax savings, wealth building and a stable payment that won’t go up over time like rents. There are tremendous benefits to owning a real estate asset that you simply won’t get with renting. Regardless of when you enter the real estate market, the top or the bottom, if you hold the asset long enough you will make money.
Lastly, if you’re feeling scared and uncertain about the changes and what it means to you, please don’t hesitate to reach out. We aren’t just here for you if you’re ready to buy or sell a home. We are here for all the times before, after and in between. It’s never just a house to our team, so please rely on us as your trusted guides and friends during these times.
Lindsay, Team Lead
Lindsay Fricks Group
“It’s never just a house”
