Real Estate News May/June 2022
REAL ESTATE NEWS Media Frenzy vs. The Facts A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. — Many people I have spoken with have no idea what to think about the current housing market. The media is leading people to believe that we are in another housing bubble, but that it’s a “different type of bubble” than before. A few sources are even predicting a rapid decline in home prices when “the bubble” finally bursts. And I think many buyers & sellers are in a state of confusion, leading some to make rash decisions out of fear, rather than logic. With so many conflicting points of view out there right now, let us cutthrough the noise and provide a no-nonsense snapshot of the current market.
As far as the media, with regards to the current housing shortage, some are trying to liken what is happening today with what happened back in 2008/2009. In reality, there is littleevidence we are in a housing bubble like the one we saw all those years ago. One major factor is the jobs market. Back in the days of the Great Recession, the unemployment rate hovered around 10%, making it hard for people to afford their mortgages, many of whom should have been considered unqualified to receive their loans in the first place. Lending standards are much healthier than they were during the days of sub-prime mortgages, when some people were practically using their homes like ATMs. As of April 2022, the unemployment rate was just 3.6%, much lower than before, so do not expect to see a huge surge of inventory when all those homeowners go belly up. A healthy jobs market goes a long way towards a stable housing market. Additionally, even if unemployment does spike, many existing homeowners have enough equity in their homes they would land on their feet.
Without going into too much extraneous detail, what should be more of a concern from an economic perspective is that the “yield curve” inverted in March, which is the one of the best leading indicators of a recession. Once this change happens, it takes 18 months on average for a recession to occur. We have already begun to see some investor panic in the current “bear” stock market. The good news: real estate is historically a muchsafer investment than stocks, due to less risk over a longer period, and since houses in general will always be worth money.People need a place to live!
On the seller side, if you do not plan to move soon, one thing to keep in mind is that a recession does not equal a housing crisis. There is always the urge to panic about house prices and rush into a decision, but prices only declined in two of the past six recessions. It is more likely that average home prices will grow, but at a slightly slower pace than they have been lately.
If you are a seller looking to make a move, do not let current changes in the market scare you out of doing what is best for you and your family. A buyer’s market only occurs if mortgage rates hit around 10%. A recession is currently imminent, butshould be gradual to start. However, in the words of our knowledgeable founder Lon Welsh, “If you are a seller, this is the end of the party, so you should get there while you still can."
On the buyer side, do not let rising mortgage interest rates scare you out of making your move. These rising rates could be your friend, since they have already begun to price less qualified buyers out of the market, and increased inventory slightly. Plus, when you look at rates from a historical perspective, you can see that the current rate of about 6% in Colorado is historically low compared with the national averages of days gone by. Rates have a lot more room to go up than to go down. You can see from past data that if rates do get much higher than 8%, those changes could last as long as the next 20 years! If it makes sense in your situation, you might as well lock in a 6% (or so) rate rather than wait for things to get even more out of hand down the road. Talk to a good lender about the pros and cons before rates get any higher. It may benefit you to lock in a rate now, before the Federal Reserve hikes them even more to help combat inflation.