Fall 2022 Realestate market update

By Rocky 2022

Realestate Market

Covid recap

Past 2 years we have seen the wildest market swings in the real estate history. The initial dip in equities as lock down froze the market early 2020 was quickly turned into a buying frenzy in late 2020 as easy money policy and the demand for larger square footage and an inflation hedge drove buyers to fight over dwindling inventory; often bidding 6 figures over market value.

Construction delays and rising prices was to be expected as underpriced listings received a hundred offers.

The seller's market lasted until early 2022 as out of control inflation forced the federal reserve to raise interest rates. Combined with prices around 40% higher than pre-covid levels, mortgages became dramatically less affordable.

The new normal

With home prices sharply higher, and mortgage interest rate doubling from 3% to 6% to a 30 year high,

the average middle class $350k home with a $1500 monthly payment with 3% interest became $500k with a monthly payment of $3000. What once required around 50k yearly income(below US median household income) to qualify now requires 100k income which is almost 50% higher than the 70k median household income in the US.

The dramatic change in affordability combined with a cash crunch in corporate investors, and higher cost of living have been leading US into a new normal where buyers sitting on the sidelines have caused inventory to rapidly return to normal levels so seller are forced to reduce prices to attract offers. The weakness of the normally hot summer market forebodes continually weakening property prices into the winter as the Federal reserve stays committed to rising interest rate for now.

On a side note, the slowing buyers have only exaggerated the tight rental market as the relatively tame rent increases during covid have picked up speed.

What is to come?

Sellers

The slowing market has forced sellers to change their expectations in a dramatic and quick manner.

If you are planning to sell, it may be prudent to keep expectations low and reduce prices sooner rather than later. Hiring an experienced realtor will help increase your home's value by quickly deploying contractors to make the right repairs and renovation to increase the appeal of your home as well as creating the right advertising material and hosting open houses to attract wealthy out of state buyers that isn't appalled by the higher prices.

Buyers

Buyers can now comfortably shop around and negotiate for a home that they actually like rather than bid for the only thing available, but my advice is to only buy as little as you need and take your time. Many homes are sitting on the market and it doesn't hurt to negotiate. In a balanced market like now, a good agent will provide you with knowledge about local communities and the best strategy to negotiate with different types of sellers.

Renters

It is probably not a good time to look for another rental or buy a house. Talk to your landlord about a renewal sooner rather than later and expect a rise in rent to cover the increases in maintenance, insurance and property taxes.

As the real estate market settle into the new normal of rapid changes. don't hesitate to call your realtor and establish a good relationship to stay on top of the market and get the best deal possible.

What to look for...

Economy

Inflation and supply chain issues has lowered profitability of major corporations and caused the federal reserve to tighten and raise interest rates. That in turn has made many tech companies that rely on cheap loans and high equity price much harder to stay afloat.

The collapse of the crypto market and the hiring freeze of major tech companies and the lay off at real estate companies should be a warning sign there are more pain to come in the market.

Geopolical conflict and china's real estate collapse are also major concerns to keep an eye on.

Monetary policy

As the market and economy take a turn for the worse, the FED may return to easy money policy quicker than expected to boost the economy. That should be a sign to buy with a low rate before inflation drive prices up again.

Work from home shift

There is a war waging in the corporate world as workers got a taste of working from home. If work from home culture becomes a trend, expect more people to relocate away from expensive metros in california and newyork into the southern suburbs again.