Last Updated on September 8, 2022 by Luke Feldbrugge
Welcome to the Housing Market Trends September 2022 monthly update from Homes for Heroes. This report focuses on the residential real estate housing market. We listen to the experts and boil down what they have to say to assist you, our heroes, with decision making regarding buying a home, selling your home, or refinancing your mortgage.
The hangover is receding. The wild, crazy, excessive real estate market we saw for the past two years is quieting down and we are all ready to be responsible adults again. Right? The returning normalcy can create its own form of anxiety, but normal can be good for all of us – buyers, sellers and real estate professionals.
The Recession and Interest Rates for Mortgages: The Push and the Pull
Conventional wisdom is that recessions are bad. No one likes them. It means, essentially, that the economy has stopped growing for a period of time. People argue about how long, but the one we are in has generally gone for about 3 months, which is long enough. Nobody is sure how long it will last.
This recession is a bit complicated by inflation. Again, no one is fond of inflation because it takes a direct bite out of all of our paychecks. This is one of those ripple effects of economic indicators, because when inflation goes up – and before this year it has been pretty stable for a long time – the Federal Reserve tries to control inflation by increasing interest rates. And that typically raises the interest rates on mortgages, which affects the real estate world.
When mortgage rates rise, it tends to depress the housing market. Mortgage loans become more expensive and people jump out of the house hunt because the rising rates affect how much house they can afford.
Recessions tend to push down interest rates for real estate. In the last six recessions, mortgage rates have declined.
What does it all mean? We have inflation pushing interest rates higher, and the recession eventually pulling them down again. Which one will win? It’s anybody’s guess, but early indications show inflation calming down and interest rates dropping again.
The trick with economic numbers is knowing which ones to pay attention to, because it’s very easy to get sidetracked or distracted by numbers that don’t directly affect you. In real estate, pay attention to mortgage rates. If mortgage rates are going down, it’s good for both buyers and sellers.
“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points…and in many cases, they continue to fall after the fact.” – Fortune Magazine
If you are a buyer, the other good news on the economic front is that inventory is bouncing back. In January of this year, housing inventory was at a record low of 1.6 months. It’s back up to 3 months, which is still low, but it’s on the upswing. Inventory is measured in months, meaning how many months it will take for the current supply of houses to sell in the current market.
Increasing inventory is good for buyers, because that means there’s more supply and tends to drive prices down. In the current scenario, more supply isn’t likely to actually drive housing prices down, but it can slow down the spiking prices and calm down the hyper-competitive housing market we’ve seen. Those who were scared off by the housing boom of the last two years might find some encouragement to re-enter the market if inventories continue to climb.
Inventory comes from three places:
- Current homeowners listing their houses
- New construction, which will hit a 14-year high this year with 1.3 million homes built
- Foreclosures and short sales of distressed properties, which is increasing to pre-pandemic levels but still quite low by historical standards.
Landing Not Crashing
We’ve said this before, but we will say it again now. The explosive housing market of early 2022 is not going to cause a crash of the real estate industry as it happened back in 2008-2009. One of the primary causes of that housing crash was the lending standards at the time. The pendulum has swung back so that getting a mortgage is based on traditional factors like your credit score and debt-to-income ratios. Even with foreclosures rising, they aren’t rising above traditional levels. Likewise, forbearance numbers, which are a measure of homeowners making arrangements with their mortgage company to stay in their homes during financial difficulties, are strong.
The media reporting on housing market crashes makes for good headlines, but the numbers just don’t bear that out. Buyers truly should be encouraged, and run a reality check on their fear and apprehension about the housing market. Likewise, sellers need to be rational if they think all of these numbers mean their houses are going to be worth less than last year. Housing prices are still going up, but the increases are at more traditional levels.
To use an airplane analogy, the real estate market is coming in for a gentle landing, not a crash.
Outlook for the Future
If the new normal for the real estate market looks like the old, pre-pandemic normal, we can find encouragement in the current numbers. Home prices are still appreciating (about 10% for 2022). Sales are still strong, projected to be 5.1 million homes sold by the end of the year. Right now, mortgage rates have stopped climbing and may have plateaued.
If you are a buyer, there are fewer multiple-offer scenarios on homes compared to a few months ago. That means less cut-throat competition and better opportunities for you to land the home of your dreams.
“There could be a potential silver lining for the market as stabilizing mortgage rates and rising inventory may bring some buyers back into the market during the second half of the year.” – Joel Kan, Mortgage Bankers Association.
If you are a seller, offers are still coming in strong. While the over-asking-price sales have dropped a bit, it’s still at about 50%. It’s still likely you will be selling for more than your asking price.
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