Suburban RE Oct 2022

Everything has a season followed by another season that has its own, unique characteristics while retaining pretty much 90% of the prior seasons. While this market re-balances and changes, a huge chunk of it remains the same or very similar. The pent-up demand surge of the past two years is subsiding to allow markets to breathe. Growth and pull back are the natural forces of all markets. We are at the tail end of an extreme market, rapidly adjusting to new realities. Every market is different, even within its sub-markets. Some prices may go up, others will stagnate, and others will adjust lower.

Higher mortgage rates continued to undercut buyer demand and have caused many buyers to pause the process, not stop it. This can fuel buyer-build-up. The more people not buying homes now, the more the buyer build up of buyers who will buy later. This could be a NOW opportunity for some. Many first-time buyers have been priced out of the market, and existing homeowners are opting to stay put rather than take less. Some sellers are simply waiting out the housing downturn for pricing to recover over time. Some inventories that saw huge spikes earlier this year have scaled back a bit. The rate lock-in effect also impacts many sellers where the vast majority of outstanding mortgages have rates below 5% with a big chunk even below 3%. If they sell now, they'd be giving up their historically low mortgage rate, hardly appealing for move-up buyers. Seasons aren't necessarily better or worse than to buy in, they just have their differences.

Notable Quotes This Month
"I think we will look back on this era of Central Banking the same way we look at Medieval medicine where the idea was doctors would help the sickness by bleeding the patient. I don't think the Fed has made a compelling case for why crushing demand is the best way to tame inflation." - Judy Shelton, Former Fed reserve nominee. CNBC

“Since the FOMC started hiking the funds rate early this year, we have argued that the U.S. economy can achieve a soft landing, even though the path is narrow. It requires sustained below-trend output growth, a rebalancing of the labor market via sharply lower job openings coupled with a moderate rise in unemployment, and a large decline in inflation. While much can still go wrong and our probability that a (mild) recession will start in the next year remains about one in three, we see some encouraging signs that the economy is moving toward all three of these goals,” - Jan Hatzius, chief economist Goldman Sachs.

“In short, the housing market is in a deep recession, which is already hammering homebuilders and will soon depress housing-related retail sales. The longer and deeper the housing recession becomes, though, the greater the pressure it will exert on the Fed to dial back the pace of tightening. Markets currently price in an 80% of chance of another 75 (basis point) hike in November, but we think 50bp is much more likely, and the parlous state of the housing market is a key factor in our forecast,” -Ian Shepherdson, chief economist Pantheon Macroeconomics

Some Good News?
It appears the massive supply-chain issues we experienced earlier this year with massive delays at the ports are coming to an end:  Only 8 ships remain offshore in Los Angeles ports waiting to be off-loaded today in January 2022, it was 122! the COVID supply chain mess is largely over and now that commodity prices are down off their crazy-high's earlier this year it is making cheaper then to build in the US.

Things I Think May Happen in Early Spring;
1. The FED will realize they went too far, too fast. They may even lower rates.
2. Several months of buyers 'on hold' will have compounded and people will realize life goes on. They will re-enter the markets realizing spending money on rent does not compound equity.
3. Some areas will be hit harder than others, especially where pricing escalated at extremes without long-term population growth trending.
4. We will have seen a season of retail sales unlike any other as retailers are very over-stocked having assumed the COVID-CRAZY markets would go on forever.
I am optimistic that the SPRING of 2023 will represent a re-awakening and renewing of ALL things in the real estate markets. Some who agree with me may seek opportunity before that moment arrives.