The only certainty in the housing market right now appears to be the uncertainty of it!

It was only a month ago that talk of a housing market crash dominated the headlines. While that talk hasn’t completely gone away, there is increasing speculation that the housing market might actually be in for a soft landing.

I cover what that means, and how it impacts you if you’ve been considering buying a home, in this week’s blog.

Watch the following video, or continue reading below, to learn more;

The real estate market is one of those topics that everyone has an opinion about and there’s seldom much agreement on where things are heading.

That’s the challenge with making predictions about anything. Nobody knows what the future holds as an event could happen next week, or next month, that changes everything.

Rather than make a prediction, my objective today is simply to share the latest data with you so can make an informed decision on what’s best for you and your family.

How Did We Get Here

Before we dive into the latest data I wanted to spend just a couple of minutes reviewing what happened to bring us to this point and provide some perspective that will help shed some light on where we might be heading.

The real estate market, after solid years in 2018 and 2019, started 2020 much the same way. All signs indicated that 2020 would be another strong year, but there was nothing to indicate we would experience what we did.

2020 did end up being a very strong year for real estate, but that wasn’t predicted when the pandemic hit.

As unemployment soared and everything shut down the predictions of a real estate market crash greater than 2008 were everywhere, but it never happened. Exactly the opposite happened.

As we emerged from lockdowns the real estate market took off and went on a nearly two-year unprecedented run, but why?

In simple terms, demand for homes skyrocketed, thanks in large part to historically low mortgage rates, while supply, which had been low due to over a decade of underbuilding, wasn’t anywhere near what it needed to be.

The result was miles-long waitlists at new home communities, multiple offers, and bidding wars that drove home prices up rapidly.

Mortgage Rates

Home prices, when normal economic rules are in play, which they weren’t in 2008, like any other good or service, and determined by supply and demand. There isn’t really anything the Fed can do to impact the supply side of the equation, and although they don’t directly control mortgage rates, they can influence them.

Changes in Fed policy with regard to purchasing mortgage-backed securities, along with raising the Federal Funds rate to combat inflation, helped cause the increase in mortgage rates we experienced this past spring. While everyone expected mortgage rates to rise this year, nobody predicted they would rise as fast as they did.

Here’s a graph showing the change in mortgage rates from the beginning of the year;

Rapidly rising mortgage rates had a significant impact on the demand side of the equation in late spring and early summer as buyers suddenly found themselves unable to afford the home they were pre-approved for just a couple of months prior.

Buyer activity slowed significantly, home sales decreased, and the number of homes taking a price reduction increased rapidly.

We all knew the market we’d been experiencing the past two years wasn’t sustainable so the rapid changes we were seeing contributed to speculation and talk about a real estate market crash. After all, what goes up, must come down, right?

Housing Supply

While housing supply has increased approximately 30% year-over-year, it’s important to keep in mind that supply is still about 40% lower than it was this time of year pre-pandemic.

Here’s a look at national housing supply levels going back to 1999;

Please keep in that 6 months of inventory is what is needed for a market to be considered balanced.

Even though inventory has risen, you can see we are still well below the levels we’ve had in any year except 2021.

Here in Frisco, we currently have a 2.6 month supply while Prosper has a 3.9 month supply. Prosper’s inventory is higher due to the large number of new construction homes that have been listed for sale in the last couple of months as well as the fact that Prosper’s higher median price point generally takes longer to sell.

While many potential buyers are hoping home prices will decrease significantly, there is nothing in the data currently to suggest that is going to happen.

The supply curve has already started to flatten as some sellers have taken their homes off the market realizing the frenzy is over while others have decided they are no longer willing to sell and trade in their 3% mortgage rate for a new mortgage at 5%

.

The new home builders also want to stay ahead of the curve and started offering substantial incentives to move inventory homes and those that will be completed in the next few months.

That strategy appears to be working as I was showing new construction homes this past weekend and certainly wasn’t alone. The model homes were packed with people everywhere we went and the sales reps indicated sales activity was strong and has been increasing.

Bottom Line

Rather than starting to crash, the real estate market appears to be finding balance.

Now that mortgage rates have stabilized around 5%, buyer activity is picking up again and it doesn’t appear as though we will see enough inventory for there to be a significant negative impact on home prices. The pace of appreciation continues to slow and the days of multiple offers and bidding wars look to be behind us.

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Have additional questions? Give us a call at 469-296-2530 or email Contact@S2RealEstateTeam.com