Suburban News December 2022

Will the Fed’s rate hikes be the Grinch this year? Will 2023 be the termed the The Great Affordability Crisis?

The speed of change matters and right now we are experiencing one of those moments with historically rapid and large interest rate hikes, historically rapid declines in sales volume, historically rapid declines in savings and rise in debt, and notable shifts in spending and investing patterns. We are in the midst of what we call a MACK TRUCK MOMENT.

“I think it will probably be appropriate
soon to move to a slower pace of rate
increases,”
- Federal Reserve Vice Chair Lael Brainard

Prices in Westchester are not dropping at the rate the media is suggesting. Real estate is very hyper local. One way to analyze this is "months’ supply". This refers to the number of months it would take for the current inventory of homes on the market to sell given the current sales pace. Historically, six months of supply is associated with moderate price appreciation, and a lower level of months’ supply tends to push prices up more rapidly. The country’s average for October was 3.3 and in Westchester we were as low as 2.5.

Almost one-quarter, or 23.9%, of homes for sale in October experienced a price drop, double the rate of a year earlier. Which also means 76% did not have a price drop. The number of new listings coming to the market in October dropped 24% annually, the steepest decrease on record, aside from April 2020, when the pandemic hit.

2022 has seen the withdrawal of the following home buyer profiles from the real estate markets:
1.  Those priced out because interest rates & home prices  have risen too high for them to be able to afford what they need/want.
2.  Those fearful of a recession and the possibility of losing their job.
3.  Those in a home with a super-low mortgage interest rate. Buying now at a higher rate feels painful.
4.  Those waiting for their bonus to have the cash to buy in 2023 and reduce the size of their mortgage.
5.  Those who are cautious and wish to 'wait and see' if/how much home prices come down before stepping in.
6.  Those who cannot borrow against their stocks because the markets are sharply down over the past 12 months.
7.  Those who have lost a fortune via crypto or other investments and need to hold on to cash reserves, or don't qualify anymore for loans.
8.  Those holding onto their cash to deploy into equities or have done so already as many believe we are at or very close to the bottom.
9.  Those who do not wish to take a large capital gain in 2022. 
10. Those who still cannot find what they want due to limited supply.
11. Flippers hardly ever buy when markets indicate a downward trend.

Everyone’s circumstances and finances are different, but this market should not be paralyzing you, there are options.

Interesting Fact
The world's population just hit 8 billion and is heading towards 8.5 billion by 2030, combined with the fact that life expectancy reached 72.8 years in 2019, an increase of almost 9 years since 1990, we can conclude the demands on housing will be strong for decades to come.

Did you know?
An analysis from the Urban Institute estimates that those who became homeowners between the ages of 25 and 34 accumulated $150,000 in median housing wealth by their early 60's. Meanwhile, those who waited until between the ages of 35 and 44 to buy netted $72,000 less in median housing wealth.

Good for home buyers
The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac or conforming loans  will rise to $1,089,300 in 2023 in high-cost markets, such as parts of California and New York, from $970,800 this year. Conforming loans generally come with lower closing costs and can require a smaller down payment than mortgages that exceed the limit, known as jumbo mortgages. For most parts of the US, loan limits will rise to $726,200 from a 2022 maximum of $647,200. By law, loan limits are calculated annually using a formula that factors in average housing prices.

Don’t believe the hype
If I wrote an article that exclaimed "RETAIL PRICES DROP 20%!" this may be accurate if I had averaged the discounts being offered at The Gap, Banana Republic and Hermes. Yet each store is offering a very different discount, and Hermes is offering zero discounts. Maybe worth thinking about this in the context of averaging anything related to housing pricing. Ask your local agent what your price point and area is experiencing right now.

Many experts believe that a 10% correction in home prices, 10% wage growth and 6% mortgage rate can bring affordability back to 30%, which is what is the standard level of affordability of homes. Consequently, while demand is declining and affordability is a real challenge, supply is likely to be very limited.

Those who are indeed capable of placing the opinions and predictions of others into context while doing their own calm, intelligent research and analysis will always have an advantage. This is the perfect time to establish data driven facts and context to help make educated decisions and strategies. Don't believe all the predictions. Hear them. Listen, but remember all these experts are guessing at different levels of intelligence. Even the most educated opinions can shift and be wrong as circumstances change quickly.

Have a great holiday month!