Buyer’s market, seller’s market, no market, recession… you’ve probably heard all those phrases over the last year. Everyone’s attempting to understand what’s happening with the housing market and how it affects them. A reader, Melissa, wrote us a few days ago, and asked:
…We are looking to buy a home, but aren’t sure about where things stand. Everything has been looking a little intense lately with the economy and everything. I know you are in real estate, so was wondering if you could give me a little bit of your general take on the market and where you think it’s headed?…
Today we’re continuing our series on all things real estate and we thought we’d share our take on all things state of the housing market. This is our opinion on the topic, so {obvious disclaimer} please understand this is just an opinion of people who work in various parts of the home industry from design and renovations, to real estate. While an exhaustive list would be impossible, we hope to hit the highlights and provide some perspective on where we are.
So without further ado, the state of the housing market.
State of the Housing Market: Concerns
• Rumor 1: It’s 2008 all over again.
There is a lot of fear out there and people are worried or have heard that we’re repeating the housing crisis of 2008. However, there is no indication that this is true. Banks are not on the verge of collapse, and mortgages are not defaulting at a record pace. Generally speaking, while it has slowed down, the market is in a healthy and stronger place than in 2008.
• Rumor 2: I’m losing value on my house every day.
Unless you purchased your home in the 2nd or early 3rd quarter of 2022, then your home is still most likely worth more than what you paid for it. Have you possibly lost some money on paper? Sure, but you haven’t lost real money. Remember it’s a market, so it will fluctuate and the money you thought you had gained was never really yours. We have to change the way we’re thinking. Our baseline is what we actually paid for our homes, not what Zillow stated on some random day the home’s Zestimate was.
So unless you’re planning on selling in the very near future, then it doesn’t matter what the day-to-day value of your home is.
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• Rumor 3: The market is overpriced so it must crash and I will lose all my value.
While that’s true that in many places that it is overpriced, here’s the thing: historically, this isn’t the first time and it most certainly will not be the last time. From time to time, every market becomes overpriced, a correction happens, then it normalizes and the market continues upwards. It’s the normal cycle of growth.
If you look at any market historically, this is the trend: overpriced, correction, normalization, and growth. {Again, this is why getting caught up in your Zestimate can drive you crazy.} Rest assured the market historically only goes one way, and that is up. As they say, not everything can go up all the time. So normalize what is happening and it will probably help you sleep a little better.
• Rumor 4: There are a lot of people who think mortgage rates are out of control.
If you look at 2020/21 rates vs. today’s rates, yeah… we should burn the place down and run around yelling doomsday stuff. However, again, if you look historically they really aren’t that bad.
When we personally purchased our first house 20 years ago, we had a 6% rate and people were amazed we were able to get it that low. In 1981 rates hit 18.45%. {Ouch.} So while they are higher, they aren’t crazy. They are average.
Yep, the historical average US mortgage rate is 7%.
State of the Housing Market: The Good News.
• Indications are that we’ve hit the bottom, and that housing seems to be stabilizing as far as the price drop and time on the market. We’re headed into the Spring when home buying historically begins to pick up.
• The Fed Chairman Jerome Powell has indicated that they will not raise rates at the pace they were, and that inflation may have peaked already. Both of these are good for not only the prime rate which affects mortgage rates, but also the spending power of most Americans.
• Indicators show that 2023 will be a better-than-average year for raises as companies play catch up, but also try to retain employees.
• Home improvement stores have indicated they expect a strong 2023 sales year.
• The housing market in numerous cities is still undersupplied. Meaning while buying has slowed, there is still a strong demand and need for new homes.
• There are also numerous mortgage incentives out right now to help with the higher interest rates from several lenders. Some are buy-downs and some are locked in mortgage rates with an option to refinance in a few years for free if the rates drop, and several other options worth exploring.
State of the Housing Market: Where We Go From here.
• If you guessed up, you’re historically correct. But most likely, the market will trend sideways for a bit before we do begin a trek up.
• The market indicates that it’s stabilizing, and mortgage rates will most likely rise a little more helping bring inflation down. As noted above though, these rates will become normal for us and buying will continue.
I don’t think you’ll see the year-over-year home value price rise at the 25% and above rate they were, but I don’t think it’s unreasonable to see 5%, even up to 10% or more in some cities. And this is also historically closer to average.
• 2023 seems to be lining up to be a more stable year with slight growth, setting us up for real growth in 2024. This means that if you are in the market for a new home or will be in the near future, 2023 might actually be a better year to buy than 2024, as the prices will be lower.
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We hope that this helps offer some fresh perspective, as we wrap up the year. We know we’re looking forward to 2023, and we hope this helps you do the same!
In the meantime, if you have any questions, drop us a comment below. Or if you want to keep it private, shoot us an email! If you want to search homes in the Nashville area with a fun tool click here. I promise you won’t get any spammy emails. And if we can help you renovate a home, we’d be honored to work with you. Be sure to check out our portfolio, here. We hope to hear from you!
Have an inspired day!
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