Desperation is at an all-time high as anxiety grips the Real Estate Market. Inability to secure affordable homes and the recession is threatening factors.
In reality, there are many frightful headlines and emotions out there. These emotions are mostly negative ones which include rage, frustration, anxiety, concern, and hopelessness. And these questions form the bedrock of your thoughts; Is it possible for me to ever purchase a home? Is it a mistake for me to purchase a home right away given that the real estate market is about to fall and I could have landed a better deal later? Maybe if I don’t the prices will keep raising and I’d not become a house owner any time soon.
To make things worse, these commotions, anxiety, and fear are everywhere—in the news, on social media, on the radio, and online.
This article post will answer your questions and clear your doubts about today’s Real Estate Market. In this article, we’ll be providing you with the facts and statistics on Real Estate. Highlighting the current Real Estate situation, the market’s future direction, and the existing state of the market for anyone who wants to acquire Real Estate. Just before we dive into these aspects of Real Estate let’s define Real Estate.
What is Real Estate?
Maybe this is your first time coming across the word; “Real Estate” or you have a basic knowledge about what the term means, or maybe you’ve once heard it on the Tv, you are right on track. Keep reading to know more about Real Estate and how it affects our present-day economy.
Real Estate: comprises the land itself in addition to all tangible items or land-based structures like apartments, buildings, fences, pumping stations, and other structures.
Real Estate Prices Vs Mortgage Rates
(June saw a substantial decline in housing demand due to rising mortgage rates and general economic inflation, which led to a cooling off of property prices).
According to Black Knight, (a mortgage software, data, and analytics company that started monitoring this indicator in the early 1970s), although home values are still higher than they were a year ago, the gains decreased at the slowest rate on record in June. A two-point decrease from 19.3% to 17.3% in the yearly rate of price appreciation was observed.
Because Supply and Demand are still out of balance, that is why price increases are still significant. Long-term shortages have plagued the housing market. And the coronavirus pandemic’s high demand made it worse. Even when home values fell sharply during the recession of 2007–2009, the biggest monthly decline was 1.19 percentage points. Given a healthier housing market overall, prices are not anticipated to decline countrywide, but rising mortgage rates are undoubtedly having an impact.
Mortgage News reports that in June, the 30-year fixed mortgage’s average rate surpassed 6%. Although it has now fallen back into the lower 5% area, it is still a significant increase over the 3% range rates that were present at the beginning of this year. Ben Graboske, president of Black Knight Data & Analytics, stated that the slowdown was widespread among the top 50 metro areas, with some regions suffering an even more significant cooling.
In reality, growth slowed by three percentage points in 25% of the country’s largest markets in June, and it slowed further in four other markets by four or more points in just that one month.
Even though this was the nation’s fastest cooling on record, Graboske estimated that it would still take six more months for price increases to return to long-term averages. According to his estimation, it takes around five months for the effects of interest rates to fully appear in housing values.
The markets with the greatest price declines were formerly those with the highest prices in the country. The worst decline in any of the top areas was seen in San Jose and in California, where average property values had dropped 5.1% over the past two months. That reduced the cost by $75,000 Prices in Seattle have dropped by $30k, or 3.8%, during the last two months. Denver, San Diego, and San Francisco make up the final three markets with the largest price reductions.
Property Inventory increases as the Price of Real Estate Cools
According to Black Knight, there are now 22% more properties for sale than there were two months before the price decline. However, inventory is still 54% below levels from 2017–19.
“It would take more than a year of such record increase on inventory levels to fully normalize with a national shortfall of over 700,000 listings,” said Graboske.
Price declines won’t have as much of an impact on the typical homeowner as they did during the Great Recession because today’s homeowners have much more equity. Home equity levels have reached historic highs due to strict capital requirements and years of rapid price growth.
Truth be told, it’s inconceivable that real, inflation-adjusted national home prices will decline by 37% as they did between 2006 and 2012. (measured by the Case-Shiller U.S. National Home Price Index adjusted for inflation using CPI-U Less Shelter).
However, the real estate busts in the previous two decades will cause house prices to decline more sharply in the 2020s. Here is a comparison of those eras with the present and what may come after.
Real Estate’s History Vs the Present data and Statistics and the future Predictions -Experts
The Great Inflation Housing Bubble (1977 to 1982): Inflation-adjusted real property prices in the country rose 18% in the first three years before declining 10% in the next three. Between 1978 and 1982, fewer single-family homes, both new and existing, were sold. Real prices have fallen to 1977 levels at their lowest point in 1982.
Due to the baby boomers’ onset of first-time homebuyer status in the late 1970s, housing demand grew quickly. People began to buy homes as an inflation hedge when they realized that while house prices increased with inflation, savings account balances did not.
The Great Inflation bubble and the subsequent boom in real prices are somewhat comparable. A large number of millennials are now reaching the age of first-time house buyers. Just like it was during the Great Inflation, the rising mortgage interest rates put a stop to our most recent boom.
The sizes of the two booms, however, make a significant difference. In contrast to the 79% increase in our just-ended boom, real housing prices rose by 18% during the Great Inflation bubble.
The Savings and Loan Housing Bubble (1985 to1993): Nationally, real, inflation-adjusted home prices rose by 21% during the first four years before declining by 13% over the next four. Between 1988 and 1991, 12% fewer existing single-family homes were sold. Between 1986 and 1991, new home sales decreased by 32%. Real prices have fallen to 1986 levels at their lowest point in 1993.
Following a reduction in mortgage interest rates to 13% from 18% in 1981, this boom began in 1985 and by 1986, the rate was 10%. The deregulation of savings and loan associations was a significant contributing factor in the real estate boom. Some con artists purchased S&Ls and utilized the proceeds to finance other ventures. Frequent speculation in real estate.
The Northeast and California experienced massive growth, while there was little to no growth in many other regions of the nation. The metro area of New York City was severely affected. Real Estate prices in New York City decreased 31% from their high in 1987 to their lowest point in 1997. Real home prices only decreased 13% nationally.
The Great Recession Housing Bubble, (1997 to 2012): Globally, real, inflation-adjusted real estate prices rose 76% over the first nine years before declining 37% over the next five. Between 2005 and 2008, a 42% decrease in existing single-family home sales was recorded. From 2005 to 2011, new home sales decreased by 76%. Real prices were back to late 1999 levels, Twelve years earlier, at the close of 2012.
Today, it is widely believed that a credit bubble existed. The market is not exposed to the same downside risks because we no longer encounter the same crazy mortgages. On the other hand, there are more single-family homes today that are held by investors, which can lead to unexpected outcomes in a down market. For investors, it’s much simpler to sell in a down market than it is for families, who would be forced to move if they did.
However, one aspect has remained constant since the Great Recession: the current system quickly forecloses. S&Ls controlled the mortgage market in previous cycles. Also, they frequently held, serviced, and created the mortgages themselves. They might take their time to foreclose, and occasionally during busts, they might even rent out foreclosed homes to prevent another distressed sale from lowering the value of their other real estate holdings.
Even while this accelerates the decline in home prices, it is still frequently in the mortgage servicing businesses’ best interests to foreclose as soon as possible. Although the number of foreclosures is currently modest, if they significantly rise, this system may once again be problematic.
The Pandemic Boom and Bust (2012 to 202?): Over ten years, real, inflation-adjusted home prices rose 79% nationwide. The dramatic climb in Californian Real Estate prices has now been stopped by skyrocketing mortgage interest rates. Real Estate prices are unlikely to decline as substantially as they did during the previous cycle when they fell by 37%.
Real Estate prices will likely drop more than they did during the two previous crashes, which saw drops of 10% from 1979 to 1982 and 13% from 1989 to 1993. This is because prices climbed by 79% during the current boom, which is currently coming to an end, as opposed to 76% during the boom from 1997 to 2006.
The Effect of the Extra Cost on Mortgages As the Interest rate increases and how it does affect prospective homebuyers
According to Redfin data, the number of active listings for housing has increased in some of the most costly metropolitan areas. In Denver, it has increased by 47%, in Oakland, California, by 43%, and in San Jose, CA, by 10%. According to Eric Finnigan, director at John Burns Real Estate Consulting, certain markets that changed the epidemic have also slowed down.
The majority of first-time homebuyers who have acquired homes since 2020 either paid more than they anticipated or sought assistance from family members. And might be forced to settle for living with their parents or relatives-a system that has been tried and found to work. If real estate prices don’t fall.
According to Finnigan, Boise appears to have reached its maximum after being a pandemic haven. Thanks to its affordable housing and closeness to the Rocky Mountains. Homes there skyrocketed by 57 percent in value in 2020 and 2021 as people flocked to the biggest city in Idaho. However, between January and May, prices only grew by 3%, which is a “remarkable” turnaround, according to Finnigan.
According to Zonda’s head economist, Ali Wolf, there are indications of recession everywhere. According to her, some areas have much more inventory, homes are staying on the market for longer, and many sellers are lowering their asking prices to attract interest.
What’s happening now is what buyers do when they have reached their limits, according to Wolf. Prospective home buyers have reached the point where they are either purposefully leaving the housing market to see what happens next or are compelled to leave because of the rising costs of buying a house.
“Therefore, when you consider the parts of the country where real estate developers have concentrated their land investments, both single-family and multi-family properties have been concentrated there as well. These places include Florida, Texas, the Carolinas, Georgia, etc. Therefore, it simply increases the possibility of increased competition when such projects hit the market and, as a result, increased pricing risk.”
By raising interest rates to combat inflation, the Fed is making home ownership considerably less accessible, which encourages more individuals to enter the rental market. Based on research, new tenants anticipated paying 9.3% more for an apartment in June than they had a year prior.
(You are free to Call it a lack of optimism or a depressing acceptance of the rental market’s reality).
Recap
Mortgage rates may increase further, but it depends on the state of the economy.
According to Bankrate data, the average 30-year fixed rates have increased from just over 3% in January to close to 6% so far this year. And it is more likely the growth may continue.
According to Black Knight, there are now 22% more properties for sale than there were two months before the price decline. However, inventory is still 54% below levels from 2017–19.
“It would take more than a year of such record increases for inventory levels to fully normalize with a national shortfall of over 700,000 listings,” said Graboske.
Because homeowners currently have significantly more equity than they had during the Great Recession, price declines will not have as great of an impact on the average homeowner. Home equity levels reached historic highs as a result of stringent lending standards and several years of rapid price growth.
Despite this, some may have issues because of the recent increase in market demand. The Price decrease could cause some borrowers to edge significantly lower in their equity positions since 10% of mortgaged properties were acquired in the previous year.
Conclusion
Whether or not the experts’ predictions that the price of real estate will decline are true. You should be aware of your current financial situation.
Are you prepared to purchase a home? If you are, this is the ideal time to take action. Don’t wait in hope that the price of real estate would fall. What if it doesn’t and the price keeps rising?
Additionally, if you are a seller who is prepared to sell, search for a top-notch agent who will make the selling process easy for you.