Housing Market Crash

Is the Housing Market Collapsing?

I know there is a lot of news spreading about the current state of the real estate market, and a lot of it can be very confusing. The media critics who are now calling for a real estate collapse are the same ones who told you 6 months ago that the market was not going to come down at all. I typically find comfort in knowing that the truth is probably somewhere in between and that wherever the crowd is heading, is probably not the final destination. I am hopeful that this article will help provide you with some clarity on what is going on so that you can make an educated decision moving forward. We are going to discuss the unsustainable growth in prices and rates, the lack of inventory, and what I am calling the great pause in the market.

For more than two years the real estate market has seen unprecedented price growth thanks to historically low levels of inventory. This created a whirlwind of a market that paid off big for home sellers and left a lot of home buyers sitting on the sidelines. The record low levels of inventory created offering scenarios we have never seen before. Home buyers were offering on homes sight unseen, paying well over appraised value, waiving inspections, or even sending the sellers on an all-inclusive cruise if they accepted their offer. Homes were seeing double digit appreciation almost every month, and a degree in common sense will tell you, this is just not sustainable.

All the major media wanted to compare this market to 2008 in which they compare inventory levels, and all of them are yelling “this is not 2008”, and they would be right. This time truly is different, because a lot of people have a lot of equity in their homes, but the media has failed to take into consideration the rampant inflation sweeping the globe right now. The United States FED has responded to record inflation by increasing interest rates, which has affected consumers borrowing power on a home. Yes, homeowners do have a lot of equity in their homes, unlike 2008, but what many have failed to calculate is how does the consumers monthly budget change when their cost of living goes up significantly? How can prospective home buyers purchase a home that has skyrocketed in price, when their projected interest rate has more than doubled? Today’s stagnant real estate market is answering those questions for us.

We still have record low levels of inventory across the State of Florida, so how is it that overnight we went from multiple offer scenarios to homes sitting on the market for months? I believe that we have entered a great pause in the market, a pause that I believe will last 90-120 days. Home buyers that are already stretched thin by inflation have decided to slow down or halt their home searches all together and this is sending the market into a full-on correction. A housing collapse is not forthcoming, but rather a correction that will bring sellers home prices back down to reality. Some areas may see a decline in value, but it is important to remember that a decline is natural in markets and a lot like the stock markets, values always rebound and go up over time.

When Should I Purchase a Home?

If you plan on purchasing and owning a home for 2+ years, then you should be purchasing a home today. I understand the rates are high, but they may be due for another increase soon, so you should be doing what a lot of people call “date the rate.” This means that you buy your home with the expectation of refinancing down the road when the terms are more favorable. Due to the shift in the market, the lack of buyer competition, and the desperation of some sellers, you can really capitalize and score a great deal on a home in this market. Yes, some homes may reduce their prices even further, but stop waiting! If you hire a great REALTOR, they can help you truly analyze the value of the home you like, estimate the long-term value, and negotiate a price that can absorb some losses. For example – if you wanted to purchase a home that supports a $500,000 purchase price, and you were able to negotiate a sales price of $450,000 then you can absorb a 10% loss in the market during this temporary pause, before you ever lose any money. If the market corrects for less than 10% and begins its normal appreciation of 3-5% per year, then you have come out of this market a winner.

Should I Sell My Home?

If you’re considering selling your home, then it is important to understand that the equity you have in your home today despite the market correction is still much higher than you probably purchased the home for. The inventory levels are still at a record low, and despite the decrease in buyer demand, there are still home buyers shopping. Every day more homes are hitting the market, which is increasing the available inventory. Once the buyer demand fully returns, the inventory will be at a healthy level, creating a healthy normal real estate market. The days of multiple offers are behind us (for now), so it is more important now than ever to consult with a top REALTOR in your market to discuss what you can do to help your home stand out. Understand the value in your neighborhood two months ago is no longer applicable. You cannot afford to chase the market down, so aggressively price your home with the correction in place so that you can stand out to all the available buyers in your area. Make sure your home is in the best possible showing condition, and make sure it is easy for home buyers to access your home. It is also imperative to understand that your home will not sell in 24 hours, therefore; it could sit on the market for a few weeks, so do not panic.

If you are uncertain of what the best decision is for you then feel free to reach out to a member of our staff at The Magnolia Group and schedule a no obligation, free consultation to discuss your options.