Hello everyone! It’s been a while since I corresponded but there is a burning question that I keep getting asked again, and again, and again… So I thought I would take the time to answer: What is going to happen with the housing market over the next 12 months?
As an experienced realtor, I can supply an answer. Since there is no one, size fits all solution, I am taking the time to make this a thorough explanation. PS- I know this is long, but for those of you that know me, have I ever landed a plane without circling the airport several times before landing the plane. Yes, I can be long winded but, in my defense, this market is complicated.
There are a lot of articles in the media discussing what is going to happen in the housing marketnationally. The reason I look at the national market is because it affects our little area of the world as most of our buyers come from outside our local. Before I go into what I feel is going to happen, I want to lay out some absolutes.
First off, please understand that the driving force behind the crazy market the past 2 years is that Millennials are finally purchasing homes. They are 73 million strong compared to 70 million Baby Boomers. We don’t hear as much about their strengths in numbers as we have with the Baby Boomers, but they are coming into the market in force. By the way, the Gen Xers are right behind them at 64 million. Family formation has driven the housing market since Caveman days. It will always be the biggest determining factor.
Secondly, the younger generations have done well for themselves, BUT there is a limit to their buying power. They can only purchase so much home before the banks say no. Rising interest rates are putting pressure on how much a home can appreciate and still be affordable. This, in my opinion, is the emergency brake that is going to slow down the crazy appreciation that we have seen. FYI- The monthly payment for a 400,000 home at 4.75% interest is $2,087 and at 6.0% it is $2,398. A difference of $311.00. While rising interest rates can seem detrimental, remember the American public understands the value of home ownership and will figure out how to keep buying homes vs renting.
Third, the country’s major builders are doing what they can to build as many homes as possible but, as everyone knows, labor and supply shortages have kept them from building at a pace to keep up with demand. With that being said, there is something that I am going to bring up here that you won’t see in other articles. The big nationals are keeping their building at a slow and steady pace vs expediting builds for two reasons. 1 – They are public companies and when they start a spec home, they have to carry the costs for the duration of the build. Labor shortage and huge increases in supply costs are making these carrying costs rise daily. 2 -The other challenge they have is uncertainty in the market. If there is a slow down and they have thousands of homes in the dirt, Wall Street will not be happy. In my opinion, they are proceeding cautiously in an underserved market.
Fourth, the cost of housing continues to be the biggest percent of most family’s budgets. While renting may seem like a solution, the rental arena has as much demand as the housing market. In most cases, it costs just as much, or more, to rent vs buy, which is driving renters into purchasing.
Fifth, people are living longer and many are also going back to multigenerational living, which is keeping families in homes much longer.
Sixth, work from home opportunities are slowly going away. A lot of companies are calling back their workforce to their office complex. These companies are spending a lot of money on real estate and feel they must justify that cost. They also want their employees in an office setting for production purposes. These two situations will, for the time being, slow the move of working families to more remote areas. With this being said, I believe this is a short-term situation. In the future, when corporate leases are up and companies that own real estate figure out how to dissolve them, and they will, there will be an even bigger work at home movement because of economics not production. It is all about the corporate bottom line.
Seventh, there is a lot of media attention focused on the fact that there has been an increase in price reductions throughout the country. Yes, I am the first to agree that there are price decreases but, as with any statistic, you need to dig deeper. Let me explain, in most listings, the seller is ultimately going to set the selling price. They will interview numerous agents and work with the agent that will list the home at the price that they want. So here is what is happening. The market has gone through the roof and so most sellers want to try and hit the biggest home run ever. They quote sales of homes that are NOT comparable to theirs and feel they should get the same. Because of this, there is a great number of homes that are coming on the market that are severely overpriced and sit there. As an example: A home should sell based on comparable homes for $400,000. The seller sees this but decides to go out at $450,000. Home sits for over 6 months. The seller decides to lower the price to $415,000 and they get $405,000. IF THE SELLER HAD GONE OUT at a much more realistic $415,000 originally, the statistics would be much more favorable in the media’s eyes. PS- The home was worth $315,000 a year ago, so the home appreciated tremendously. The point I am making is that there is much more to the story than the headline.
You should also checkout the recently posted blog: “WHAT NEEDS TO BE DONE IN CITRUS COUNTY TO INCREASE YOUR HOME VALUE”.
Eighth, not every recession is a housing recession. Dave Ramsey was recently quoted saying that housing has only gone down twice in the last 100 years; In the 1930’s, and of course, 2008-2010.
LAST BUT NOT LEAST– Supply and demand will be the ultimate determining factor of what the housing market will do. My favorite statistic to measure what the market is doing is Months of Inventory. It is measured by taking the number of listings and dividing it by the average number of homes that are sold in a month. To put this into context, 6 Months of Inventory is Neutral, anything below is a Sellers Market and anything above is a Buyers Market. At the present time, nationally we are sitting at 3.1 Months which is still way below 6 Months. Citrus County is at 2.9 Months which is below. Now there are spots where it is above the 6 Months, like Pine Ridge where homes Over $600,000; there is 7.5 Months of Inventory which affords the advantage to the Buyers. The point being is that overall inventory is still incredibly low when compared to historical norms but there are pockets of high inventory.
As you can see, there are lots of absolutes and assumptions that will be affecting the housing market in the years to come. It is never easy to make predictions, but I am going to go out on a limb and say that the national market and our Citrus County Market is not going to Bust but it is going to RUST. What I mean by that is I don’t see any significant price decreases coming in the market unless there is something that affects the world like a war or something incredibly out of control. I feel that the higher interest rates along with higher inflation is going to eat into what a family can spend on housing, so instead of the homes appreciating, the money is going to be allocated towards higher interest rates and a lower value of the dollar. That is OK though, there is going to be a steady amount of demand in the market without a huge influx of supply. If this is the case, the prices might not rise as quickly as they have in the past two years, but they will be steady with the lower end of the market doing a bit better than the upper end. I feel there will be fewer transactions in the marketplace because there will be people priced out of the market, but the overall demand will keep the prices steady. They might bounce a bit down but nothing like 2008. Basically, if you are interested in selling, it is still a good time to do so as long as you work with a professional that understands how to price right!
If you have any questions or would like to discuss them further, I would love to hear from you 352-422-5297.
