Posted by & filed under Buying, For Sale or Rent, Selling.

where is real estate headingWhere is real estate heading?  Is the market going to crash?  Should I buy a home?  Should I sell my home?  These are questions I’m hearing more and more lately.

Although we are being bombarded with happy reports,  there are also definite signals that change is coming.  What everyone wants to know is when will the market change and how much will it change.

Real Estate Market Signals

1. The Fed

2. Inventory

The Fed is going to be buying fewer mortgage backed securities.  They’ve been talking about it for months.  Now it’s real.  This is what they mean by tapering.  Buying fewer mortgage backed securities and other things like bonds causes interest rates to go up.  Higher rates means that the actual cost of housing will increase.

Rising rates not only affects the housing market.  It serves to pull back the economy as well.  The Fed acts not only to cool off housing; they want to slow the economy in order to battle inflation.

Inventory is increasing.  While there’s still too few homes for sale, it’s also true that we have more available than earlier in the year.  The balance between buyers and sellers inches closer every month.  Jeff Otteau among others says that by 2023 it will be a buyer’s market simply because of this.

Why There Will Be No Crash

1.  Fewer Foreclosures

2. Mortgage Qualifying

3.  Home Buyers

Fewer foreclosures will be seen in the future than what we had in the Great Recession.  We haven’t had any because  government entities backing mortgage lending (Fannie Mae, Freddie Mac, VA, FHA, Farm Loan Program) have been forbidden to foreclose.  This is because of the government moratorium on evictions which has just ended.  However a lot of homes have plenty of equity.  Since they do, many homeowners forced to sell can pay off their mortgage and walk away with cash.

Mortgage qualifying has been responsible.  We had a real estate crash before because lending practices were irresponsible.  People who did not have enough income were still given mortgages.  Since we’ve recovered from the Great Recession, banks have gone back to sensible, responsible lending.

Home buyers will be increasingly made up of the largest demographic; that’s the millennials.  They are 23-41 years old and most put off home buying until their early 30’s.  This means that we’re not even halfway through this huge group.  We have at least another 10 years to go.

Experts Predict No Crash and Continued Positivity

You know the cliché – nothing lasts forever.  We are still in the longest positive real estate market we’ve ever had.  How about almost 10 full years of non-stop appreciation?  Unfortunately inflation has come.  It’s time to temper the market.  The disparity between buyers and sellers will end.  Because we are on firmer ground, we’ll have what’s called a “softer landing”.

Look at this charge from Pulsenomics.com –

pulsenomics.com

 

Most of the experts I’ve seen believe this is what will happen.  The other group that feels pricing must pull back for a while but not by much.  My view on this is that we’ll most likely see a 10% reduction but then move forward.  At his October seminar, Jeff Otteau felt that 2022 would go down to 3-4% appreciation overall in New Jersey.

What This Means For You

I’ve said it before.  Waiting is going to hurt you.  Why?  Because of interest rates.  Even if you believe home prices will go down 10%, the higher interest rates will wipe out that gain.  Rates, by the way, are currently rising.  They’re not under 3% any longer.

For homeowners, you’ve gotten the most you’ll get from this amazing positive market.  The cost of owning your house is going to be more than the appreciation you’ll get.  Additionally it’s a gamble on whether or not prices will come down that 10%.

Look, you don’t have to buy or sell with me.  I’m not here to twist anyone’s arm.  The facts are what they are.  As odd as this seems, you should buy or sell now or by early spring.  If you want more information or to be kept up to date on where is real estate heading, call me at 201-741-8490.

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