What the heck happened last week? Nov. 16, 2022

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Real Estate



Hey everyone! Welcome to the latest installment of What the Heck Happened in Real Estate: the show where we look at the most important and interesting stories to come out of the real estate world.
 
So if you haven't heard, there were some elections last week. I'm going to guess that if you watched the news at all, that's almost all of what you saw.

Well believe it or not, the real estate market continued running despite none of it being covered. Our biggest story? Inflation has finally starting easing a bit after interest rates have more than doubled this year. This shows signs of hope for a housing market that has already started to feel the effects of these drastic rate hikes.

As I mentioned last week, the mortgage payment for a $250,000 today is the same as a $400,000 home back in January. These rate hikes have caused a lot of buyers and sellers to put a pause on their real estate dreams.

Actually...I want to pause the news here for one second to address something I've been hearing a lot. Personally, I'm tired of hearing the line "interest rates are just going back to normal". Anyone who says this isn't giving you all the information. In fact, it's usually followed up by some kind of comment about "I remember when rates were 10% or 15%, and that was good back then!" Well Bob, the problem there is that when rates were 15%, a home only cost $69,000.

So yes, mortgage rates being above 7% is historically normal, but an average home costing $400,000 is NOT. Rates have been too low for too long, and now home prices have adjusted to that. In fact, it's been 21 years since rates were 7%, and back then a home only cost $170,000.

That's less than half of a home today. So home prices have more than doubled since then, but...and I hate to be the bearer of bad news again...household income has not.

So yes, even if 7% rates are normal, it doesn't matter. The average mortgage payment in this country jumped from $1,200 to $1,900 in less than a year. Homes have literally not been this unaffordable for the average family since 1986.

Now...where were we. Oh yeah...inflation...
 
So I mentioned that U.S. inflation has finally started curbing. While this is great news leading into 2023, we're still nowhere near the Fed's target inflation goal. This is happening in tandem with the good news that the U.S. job market report came back strong, even as many major tech companies start laying off tens of thousands of workers.

You might hear all of this and think a market crash is on the way, but it doesn't appear that way. At least in the residential real estate world. The average amount of equity in an American household today is $300,000, and many of these people hold mortgage rates below 3.5% or have their home completely paid off. This means that most homeowners aren't in a financial crunch, and have decided to sit put and wait for all of this to end. That has lowered the number of new listings coming on the market, which means supply is lowering while demand is as well. This is causing real estate prices to drop slowly in some areas, and stay stagnant in others.

Plus, whenever the U.S. economy goes into a recession, lower interest rates tend to follow. All of this combined has led the top real estate data companies in the country to predict that home prices will end in 2023 anywhere from down 5%, to up 2.5%, or basically at 0% when they're all averaged out.

So what do you do going into next year if you're planning on moving? Well, it's important to analyze why you're moving. Everything is extremely circumstantial right now, and actually hiring a realtor or company who is great at what they do is the difference between making or losing tens of thousands of dollars in this market.

To add on to that, despite affordability issues for many buyers, there are still a lot of great opportunities and reasons to move. One, for example, being if you are one of the many homeowners with a solid equity position who is moving due to life circumstances. If you had a baby, can't do stairs anymore, or need to move for work or family, the market right now shouldn't stop you. Since you already own property, it doesn't matter whether the market is up or down, because you're selling your home and buying a new one in the same market.

Plus, I always say, real estate is the only investment that is also the place you live, and with record high rent prices making renting a poor option, owning is still technically the way to go, as long as you're buying long term.

Real estate has always outperformed inflation, meaning homes are likely to become more and more unaffordable in the decades to come. This has even led to some bold predictions, like in 20 years owning a home will be luxury for young people, and not a common expectation.

Just know there are still a lot of great opportunities out there, so don't let the doom and gloom of news headlines stop you outright. You just need to be more strategic with how you finance, what you offer, and who you work with.
 
Lastly, as we slowly head into the holiday season, you could own a piece of Christmas history because the home from a Christmas Story is up for sale! It comes with multiple buildings on a 1.3 acre lot that includes a museum and multiple parking lots. It’s been renovated with antique appliances and other wall-to-wall anecdotes. The best part is that buyer letters are welcome. In fact, the seller specifically wants buyers to write a theme about “Why you want to buy the Christmas Story house and museum”.
 
That’s all I have for you this week. I’ll see you next week with all of the latest stories. Take care!