Real Estate Market Outlook - September 2022

Despite rising interest rates from the Federal Reserve Bank in an attempt to cool off an overheated economy, home prices in Texas and around the country have remained more resilient than predicted.

Interest rates have been increased throughout the year, and the Fed has indicated more interest rate hikes are in store for the rest of 2022 and into 2023. While rate hikes typically put downward pressure on home prices, prices have only recently begun to taper off according to data supplied by the National Association of Realtors (NAR).

Although the housing market has declined slightly, it may be only seasonal as historically prices tend to drop in late summer and into fall when the market generally slows down for the winter.

Nationally, the median home price peaked in June at a record high of $413,800 before falling slightly to $403,800 in July. Year over year, the existing home sale median price is up over 10% in most markets, largely driven by a construction material shortage, a lingering effect from pandemic related shutdowns in 2020 and 2021.

It does appear that the material supply shortage is coming to an end as commodity prices have fallen back to close to historic averages after extremely high prices in 2021. Lumber, copper and aluminum prices are currently all back to where they were in early 2020 before the pandemic, indicating that the economy as a whole is getting back to normal.

A Shifting Economy

In certain respects, it appears that the economy is already in, or at least headed towards, a recession. Gross Domestic Product (GPD) has already declined two quarters in a row, which many economists already consider a recession. The job market, however, does remain extremely strong and the employment rate is considered to be roughly full employment with many companies indicating that they are unable to find employees to fill their ranks to sufficient levels. Consumer sentiment is also fairly stable and strong, which is usually not associated with a recession. The stock market, however, has been in a full fledged bear market throughout the summer having fallen close to 20% as many corporations failed to meet earnings expectations and have lowered guidance for the rest of 2022 and into next year.

All of this points to an ever shifting and unstable economy as things continue to settle after two years of unprecedented pandemic related disruption.

Housing Market Predictions for September 2022

It does appear that housing prices have finally peaked and will fall as we head into late 2022 and into the new year. Interest rates have risen and will continue to rise which will finally push prices down. In addition, so many transactions have occurred in the real estate market in the last two plus years that almost anyone who wants to move has already moved.

We have known for a long time that rates were going to rise, so both sellers and buyers have been heavily incentivized to complete their transactions, which finally has led to declining inventory levels.

Rising rates have both pushed sale prices down, while pushing monthly mortgage prices up, leaving little incentive for both buyers and sellers. In addition, most current homeowners are locked into mortgages with extremely favorable terms and interest rates, also leaving very little incentive to upgrade to a nice home or better neighborhood.

One more thing that the housing market has going against it is that the work from home trend has not abated as much as many economists have predicted. Many companies are still allowing employees to live and work away from the office, which means that there will be fewer people moving into new homes to facilitate career changes. All of these factors are combining to almost guarantee a slowdown in the housing market.

At this point, it must be noted that there are no reputable economists predicting anything akin to the crash of 2008. Few people have adjustable mortgages and the job market is extremely strong, which means that people being unable to pay their mortgages is not and will not be a problem. What we are looking at is simply a slowdown in the housing market back to normal, and even healthier levels, after two years of increased activity.

Tips for Those Still in the Market

For both buyers and sellers in today’s market, there will be challenges, but the same rules still apply. Sellers will not be getting as many offers as before, so they will not be able to ask for things like waived inspections and overlooking routine maintenance. Sellers who still make sure that their houses are in good condition, properly staged and marketed by a trustworthy real estate agent will still be able to get a fair price for their property, it just may take a little bit of work.

Buyers will still be able to get an affordable mortgage as well. Yes rates have gone up but they are nowhere close to being considered high by historical standards. There are still many programs available for low and even no down payment loans, but most buyers would be best off to consider making a large down payment if they can afford it to lower their monthly mortgage payment.

Unique Opportunities for Investors

These market conditions, while challenging for many, may present a tremendous opportunity for certain real estate investors. Inflation has and will continue to push up rents, making investment properties especially valuable for the time being. Especially those investors who may be able to pay cash will have a great opportunity to purchase properties at a discount and rent them out for high rents.

As is always the case, the market is constantly changing and those who benefit are the ones who are able to fill whatever need the market is calling for the most. At this point as we head into 2023, it appears that those in the real estate investment business will have the upperhand in filling the need that the market is calling for.

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