Today’s real estate market; an inflection point

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Published Date 5/23/2022

Economists across the U.S. are trying to get a handle on what is happening now so that they can try to predict what the real estate market might look like over the next few years, but no one has a crystal ball. No one can quite figure out how inflation is plaguing the country while Americans don’t seem to be backing away from spending. Perhaps the pandemic has demanded so much sacrifice from them for so long, Americans want what they want when they want it.

For more than 15 years, George Ratiu has been a senior economist and manager of economic research at Realtor.com, where he focuses on trends in global economies and real estate markets. Here is what he is saying lately:

Interest rates won’t be going down any time soon, and will no doubt go higher. “The surge in rates pushed the monthly mortgage payment for a median-priced home $550 higher than a year ago, a significant increase considering that most households are also feeling the squeeze of higher prices for food, gasoline, cars and clothing. Just as importantly, rates are expected to continue rising as the Federal Reserve tightens credit flow,” says Ratiu, who predicts that if the pace of increases continues, we could soon see a 6% rate on 30-year loans.
Continued low inventory will find homebuyers continuing to scramble. When there aren’t enough homes for sale, it limits your choices. “The main reason for this shortage is the fact that builders have not matched the pace of construction to population and household growth over the past decade,” says Ratiu. MarketWatch’s Alisa Wolfson reports that there’s a shortfall of nearly 6 million homes, according to research from Realtor.com, and that makes it difficult to find enough homes for all the buyers looking for a property.
Upward pricing structures aren’t going to change any time soon. “In many markets across the country, buyers are finding that they may still be outbid by someone with a cash offer or a higher down payment,” says Ratiu. Wolfson adds, however, that because of sharp increases in interest rates and inflation, he says we’re nearing the top of the price growth curve. “In some markets, sellers are finding that buyers are beginning to spend more time looking and are less willing to waive contingencies, insisting on home inspections and asking homeowners to fix a property’s shortcomings,” says Ratiu.“We can expect prices to continue rising in the months ahead. For consumers, the bottom line is that higher expenses are leaving less money in their pocket at the end of each month, just as rents and home prices continue rising at double-digit rates,” says Ratiu.
Sellers will still rule, but not so powerfully. Sellers’ advantage is starting to wane given the combination of high prices and higher interest rates—which are pricing millions of buyers out of the market. Ratiu says the slowdown in demand is noticeable as sales of both new and existing homes have been declining over the last couple months. “Twenty percent of homeowners indicated that they plan to move forward with pandemic-delayed plans this year and list their properties for sale. The increase in supply will lead to more competition among sellers, shifting the market more towards buyers,” he says.
Lastly, Ratiu encourages not to permit FOMO (fear of missing out) to keep you from buying the home you love. Ratiu advises, “The pace of new construction is picking up, more homeowners will be ready to list their houses and with rising interest rates, prices are already adjusting to the slowdown in demand. Patience is generally viewed as a virtue and may also be a key ingredient in this year’s search for a home.”

MarketWatch, TBWS

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