There are two new developments that indicate we are returning to a normal market.
Listing supply is increasing
Both existing and new construction inventory is on the rise after thirty seven consecutive months of declining inventory. Building permits are also increasing meaning new construction is underway after 10 years of new construction at 50 to 60 percent of normal construction output resulting in the current housing shortage. Housing price rise and fall based on supply and demand. As the housing supply increases relative to demand price appreciation of housing prices slows down. Rising prices and modestly increasing mortgage rates have reduced affordability, specifically for the first time home buyers who are discouraged and struggling to buy with so little on sale. What this means is that the sellers’ market is coming to an end. The bidding wars between buyers in past are unlikely to continue unless the property is in a very exclusive market. Sellers have started reducing prices and the buyer pool has started to shrink. The future for sellers is bleak but qualified buyers should get ready because their day is coming and in many markets is already here.
Buyers demand is softening
Things could change very quickly as rising prices and stagnant wages could make it very difficult for sellers and first time home buyers. Even if market prices for homes adjust 10 to 20% it may not be enough to offset rising interest rates. The greatest hurdle in the path of buyers is increasing mortgage rates that have increased to the mid 5 percent to 6 percent depending on the program. Non-prime borrowers are in the 7% range right now. Rates are significantly higher now than from the previous years of low 3 to 4%. The Power Is Now is predicting that we will see 7% interest rates in the prime credit market by the end of 1st Quarter. Higher interest rates will stop buyers from buying simply because of affordability. The slow down in demand will increase the risk of the economy of going into a recession.
Is another housing bubble about to pop?
Could lower price appreciation, an increase in inventory, price reductions of homes for sale and rising interest rates cause a financial crisis? Most housing experts are not worried since there are more checks and balances in place but we are in unfamiliar territory and no one really knows what is going to happen. If history is going to repeat itself, then we are heading into a recession. A recession will bring massive job layoffs and will stop businesses from hiring, expanding and investing. We will have a crisis but it will not be anywhere near what we experience between 2007 and 2009.
Housing is the largest expense in the typical household. Everyone has the same challenge to manage our finances and build wealth for the future. If you were self employed and looking to improve the budget and bottom line of your company, you wouldn’t do it by trying to trim small expenses. You would do it by tackling the largest expenses first. If you’re renting then not only are you paying too much and throwing your money away but you’re losing money. You are not benefiting from the principle reduction of the debt on the property or the appreciation of value and equity. The housing market is not falling apart, we are returning to normal market which in the long run and coming years will be much better and easier for you whether you are a buyer or seller.
Do not allow the changes that are occurring in the market place to stop you from moving forward to sell or to buy. If you don’t buy now, when you do decide to buy? You will be paying a much higher interest rate and the cost of the property will be far greater in the long run than it will be in trying to achieve a 10 to 20% reduction in the price and buy later. If you decide not to sell now but later then you will be selling at a much lower price. It is difficult to predict how much lower but if history repeats itself we will see significantly higher interest rates which means you will experience a significant price reduction. There is an inverse correlation between interest rates and prices. As interest rates go up prices go down. It would be better to take the hit now than to take a greater hit later.
So get ready! Do not become complacent or depressed about your real estate goals. Take action now. The Power Is Now!