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July & August Monthly Market Update

The Truth About The Real Estate Market

Careful About The Information You’re Getting

You have to be careful about what you listen to in the news that often gives a very bleak outlook on the curing house at market. Here are a few stats that show you the awesome opportunity for both buyers and sellers in today’s market.

As you know, the real estate market is largely driven by supply and demand, and right now all signs are pointing to a slowdown in real estate. We typically track supply and demand by monthly inventory on the market. That is if no homes were to be added to the market right now, how many days would it take for all the existing homes to be off the market. In a balanced market monthly inventory sits right around six months. Now, if you look at the supply of inventory over the last two years, it has started to steadily increase from about 1.6 months of inventory to now right around 3.0 months because existing home sales have started to rapidly decrease with interest rates, rising and inflation still burning hot.

The inventory number is projected to continue to increase, and this will come in the form of more homes on the market and a lot more competition out there. If you’re a seller positive here is that year over year home sale prices are up. So you can still get a very great price for your property.

There is a downward market pressure showing us that we can continue to support the current prices and appreciation what I mean by downward pressure outside of interest rates rising, which is pulling buyers out of the market is historically speaking. And a healthy market buyers are buying homes at four times, their annual salary, but currently they’re buying homes at eight times, their annual salary. If you take a look at this graph, documenting the home price to income ratio, you can see that we are actually at a higher level than the last housing bubble in 2005.

Not to say that that is the exact same thing, but it is telling us that the market that we’re in is currently very unhealthy with that said something has to give in regard to either home prices or interest rates. JP Morgan reported that their mortgage origination volume is down 11% from last quarter. So the market is decelerating. Interest rates have risen, which logically takes some buyers out of the market. But now loan originators are starting to drop their rates a bit to get more buyers in the door. The reality of the situation is the market has been racing over a hundred miles an hour over the last couple years. And now we are starting to decelerate. In addition, home buyers are canceling contracts at the highest rates since March of 2020 14.9% of contracts in the last 60 days have been canceled by buyers.

This is very normal when the market is beginning to transition and buyers are getting a little bit more power back. These are pre-pandemic conditions where home inspections and appraisals are coming back. So it’s not uncommon to have to sell your home a couple of times. Before the pandemic, about 12 to 13% of all contracts would fall outta escrow because we were able to have appraisals and inspections, things that we have waved in the last two years, because the market has been so competitive, but now these things are coming back.

If I’m a buyer who’s lost out on a home in the last year and thinking of starting my search again, this is definitely the time to do it. We don’t know how much more the interest rate is going to rise, but we do know that that it’s going to increase throughout the year. If I’m a seller right now thinking to sell in the next year or two, I’m getting my home out there on the market as soon as possible, regardless of what your friends and neighbors have to stay. There’s still so much opportunity out there in the housing market. We look forward to working with you soon.

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John Newman

Founder & CEO of The Newman Group

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