In rapidly changing markets the best thing to do is focus on the most current data. Ignore clickbait headlines and any forecast that goes out further than three months.
It is very early in the housing market shift and no one knows what will happen. It is not market changes themselves but the speed of change that is causing the feelings of chaos. Right now, after a long run up in home prices we are going through a market disruption, where the markets behave erratically. Once the disruption settles down, we will likely enter a correction (not necessarily in all markets) as the housing market attempts to normalize. The markets of the past two years are unsustainable. Remember, a correction is not a crash.
Consumer sentiment is among the most powerful market drivers in any economic sector. When consumers are nervous, they pull back. Fear-mongering headlines do not help empower consumer sentiment. For example, Inman recently ran a headline that said, “Zombie foreclosures post 1st increase since moratorium’s end” The article mentions the 7,500 properties going through the foreclosure process in Q2. During normal times there are around 200,000 properties in pre-foreclosure, so 7,500 foreclosures is not a number to cause panic.
There are a lot of forecasts from different publications, analysts, and economists. It seems as though the analysts and economists who are not in real estate tend to predict that home prices will decline. Many of the housing analysts and housing economists say that appreciation will go flat but unlikely go negative by much if at all. I am not sure if the housing analysts either know more than the others or they do not want to give bad news to the real estate industry. I’d like to believe that it is because they know more but at this point, anything could happen.
National Real Estate:
- Available single family home inventory is still rising but at a slower rate. Inventory increased 3% last week to 375,000, slower than the 5.7% week over week increase two weeks ago, or the 8% week over week increase three weeks ago. We now have more homes on the market today than we did at this time last year. Inventory is up nearly 56% from the bottom on March 7 (241,000)
- Price Reductions increased by one full percentage point week over week last week, up to 24.1%. That is the highest level of the year. Normally about 30% of homes take a price reduction before selling so last week’s rate is still below normal, but the rate of increase was steep. Price reductions typically peak in the fall before resetting around the holidays. Based on our current trajectory, we may hit 30% reductions by next month, which is back to the normal rate.
- We had the fewest immediate sales this week since last winter, likely because of the holiday weekend. It is normal to have fewer new listings hit the market over Memorial Day weekend. Despite having a smaller number of immediate sales, last week’s percentage increased from two weeks ago. Before last week’s increase, we had 6 weeks of declines in immediate sales. Take it with a grain of salt, it isn’t a real increase in new listings. Expect this decline to continue next week. Last week was an anomaly. Immediate sales has been a defining aspect of this current market.
- Fannie Mae predicts that new home sales will decline by 1% in 2022 and by 13% in 2023. Because the new home market is so much smaller than the resale market, it moves faster and can give us a forecast of what is to come for the resale market.
- Home buyer sentiment declined for the third consecutive month. Only 17% of Americans surveyed in May said it was a good time to buy a home, breaking previous record lows of 19% seen in April and 24% in March.
- Purchase mortgage applications are down 21% year over year and down 7% week over week.
- Due to the decline in demand, builders are feeling pressure to drop prices and increase buyer incentives.
- In April existing home sales declined for the third month in a row, down 5.9% from a year ago.
As announced on Friday, inflation reached a new 40 year high as CPI climbs to 8.6% in May, up from 8.3% in April. Experts had predicted that we peaked in March after April saw a slight decline. Gas, shelter, and food (all basic human necessities) are what drove the increase.
Real Estate News:
- NAR’s appeal challenging the class certification in the Sitzer/Burnett commission lawsuit was rejected. The trial is set to being in February 2023.
- Half of the people who bought a home over the past 2 years say the process made them cry.
- A lawsuit against Realogy over cold calls from Coldwell Banker agents is heading to trial as a class action now that an appeals court has rejected a request for review from the brokerage giant.
A lot is happening in housing and there is no reason to panic. The market of the past two years is unsustainable. In order to get to the calm of a more balanced market, we have to go through the chaos of change.
Copyright 2022 Sarah Perkins
Sarah has been in title & escrow sales since 2004. As an award-winning sales executive and now the Director of Strategic Accounts, Sarah’s role is to bring real estate transactions to Clear Title. To do this, she focuses on supporting her clients and helping them navigate the ever-changing real estate space through thorough research and understanding of current trends impacting today’s home buyers and sellers.