The Market Shift Explained!
COVID Mentality
Two years ago, COVID-19 stitched itself into the fabric of our everyday lives. It was at the front of everyone’s minds… “Am I going to catch it? Am I going to spread it? Am I going to lose my job?”.
When the government issued lockdowns across the nation, everyone and their mother believed this was the beginning of the end for the U.S. economy and the housing market. But to everyone’s surprise, the opposite happened.
Supply
In the big picture, we’re dealing with a severe housing shortage in the United States. For many years, home builders haven’t been able to keep up with the growing population.
COVID 19 only added fuel to the fire. Lockdowns and restrictions put pressure on transportation networks and employment, which led to supply chain constraints and unprecedented lumber prices. If you’re running late, just blame it on the supply chain crisis.
Replacement cost, or the cost to rebuild your a from scratch, is one of the ways appraisers and insurance companies calculate a home’s value. So thanks to supply chain constraints, labor shortages, high lumber prices, and inflation, replacement cost is higher than ever!
Demand
In the grand scheme, demand for housing is at an all-time high. Millennials, who make up the largest living generation, are entering the market in full force, and experts suggest they’ll continue to drive demand in the coming years. Where else are Millennials going to make their TikToks?
COVID only intensified demand. Lockdowns and restrictions forced businesses to operate remotely, so many people found themselves wanting to purchase a home away from dense urban areas and traditional job centers. Taking social distancing to the extreme I guess!
On top of that, the Federal Reserve sunk interest rates to a historical low to help stimulate the COVID-restricted economy. So people who previously couldn’t afford a monthly mortgage payment had a once-in-a-lifetime opportunity! But all of that changed when the Federal Reserve started hiking interest rates back up.
The Market Shift
Fast forward to today, higher interest rates are taking a toll on home buyers, especially those already tussling with record-high home prices. Today, the national average on a 30-year fixed-rate mortgage is around 6.28%. That’s the highest it’s been since 2008.
Real estate represents the single largest purchase people make in their lifetime. If you mix rising interest rates and all-time high housing prices together with a high inflationary economy and a bearish stock market, expect hesitation from buyers.
In April 2022, 15% of home sellers have reduced their asking price, and new home sales have fallen 16.6% from a year ago. In May 2022, the number of mortgage applications to purchase a home was 15% lower than a year ago. I would think twice before listing your home higher than the previous sale in your neighborhood.
What Does This Mean For You?
When I say “market shift”, I don’t mean a 2008-style crash. In fact, Fannie Mae predicts home prices will appreciate 10.8% in 2022 and 3.2% in 2023. This is because the United States is short more than 5 million homes. And it’s almost impossible to have a crash when there’s a shortage of something.
However, homes are making themselves available this season, and they’re staying on the shelf longer. Buyers in this market are beginning to have options, and with today’s expensive prices, they’re getting choosier.
You may be asking, is now a good time to make a move? Buying or selling a home is a highly personal decision, and the answer is going to be different for everybody. Ask yourself: why do you want to make a move? I’m guessing it isn’t to get the best rate or the best price.
