What’s happening right now?
Currently, we are seeing mortgage rates increasing a bit, and is expected to continue rising. Projections show the rate nearing 3.8% by the fourth quarter of 2022. Home prices are continuing to appreciate. Inventory is still low. Merrill Lynch has spoken on the inventory issue by attributing part of that issue to an increase of millennials buying homes during this peak time where there is a supply issue at hand. In this blog, we will be talking about the economy, new builds and inventory, and purchasing.
First, we’ll talk about forbearance. As we’ve said before these programs that were designed for people in forbearance have done their job. We are continuing to see families come out of forbearance. It was feared that we would see a flood of foreclosures come to market, but instead, we are seeing families come out of forbearance favorably.
Unemployment has grown from 6% to 6.1% but has relatively no effect on real estate. Inflation has taken a big jump as it sits at 4.2%. The base effect of this growth in inflation is that during COVID inflation didn’t increase as it should have. Instead, it remained unusually low and now it is almost like inflation is making up for the lost time. If you look at the last 6 months, you can really see the price escalation take great effect. If you look at what your money could get you last year and compare that to what it will get you this year, you truly see how the price escalation has taken effect.
Let’s talk about the current building market. Lumber has increased by 400% in the last 9 months. The supply and demand in this market has come out of the pandemic imbalanced. We expect to see an increase in new builds in the coming year and so forth. With increasing lumber prices we should anticipate seeing these new builds costing more than they did last year. The question being asked is, “Am I overpaying for my home now? Should I wait until next year to buy?” The only way to answer that question correctly is to lean into the data. The data is projecting home prices to continue to rise as well as interest rates, although interest rates are projected to still remain favorable. JP Morgan has spoken on the fear of overpaying now by saying that “it is better now to buy than 12 months from now”.
Purchasing a home during this market is absolutely insane. There is a lot of changing and moving parts. One topic that has taken part in many conversations is the issue with appraisal gaps. Home appraisals are having a tough time trying to keep up with the price escalation taking place. It hasn’t been uncommon for potential buyers to be waiving the appraisal or to make up the difference by putting more cash down. The bottom line is inventory is extremely low and demand is high, therefor buyers are willing to do whatever they have to in order to secure the property of their dreams. One thing that is also being experienced is tight lending standards. More people want to buy now than in 2008. Lenders are not needing to loosen their standards by any means to try to get people into new homes. It’s simple. The demand is there.
To conclude we expect to see the economy experience changes as there is talk of three proposed tax plans coming from Washington, DC. One of those proposed plans includes a buyer tax credit, but it is expected for this credit to only be offered to a small selection of people as we see that we have a supply issue and not a demand issue. We will be looking to see an increase in new builds, but we still expect to be seeing the real estate market remain competitive. One of the best things you can do right now as an agent is to call your database. Check-in with your friends, family, and past clients. Start that conversation. Find out if their home is still meeting all their needs and make them aware of how hot the market is. “Headlines do more to terrify than clarify”, as Tom Ferry would say. Be the knowledge broker of your market and offer clarity.
As always we are your friends in real estate, here for all your real estate needs.
The Freund Group with Compass Real Estate.