The Year is 2022 – NOT 2006
I keep reading headlines alluding that what’s happening in our housing market today is a repeat of the great ‘bubble pop’ of 2006. I’ve also been asked many times over the last couple of years if what we’ve been experiencing is another one, to which I have consistently answered, “This is most certainly not a bubble, and there will be no pop. “
I started my career in the housing boom of the early 2000s, so have first-hand knowledge and hindsight on what that was like and the main reasons behind it. For any of you who follow my market update videos (here’s a link to the 3rd quarter video in case you missed it), you know I firmly stand behind the fact that greed and shady lending practices fueled that crisis. The resulting over-borrowing by consumers caught up to them, which forced an extreme level of foreclosures not seen in decades. This is not that. But it is somewhat of a ripple effect…
The crash of 2006 resulted in a halt of new homes being built. It also resulted in an extreme over correction of both lending practices and rate drops by the fed to help fuel the economy, and the rates have not been corrected over the past 10-15 years. (Back in April I recorded this video about rate trends through history that illustrates just how ‘not normal’ our normal has been since then. I highly encourage you to watch if you haven’t already.) The result of this little cocktail is a major factor in our extreme inventory shortage and the Pandemic, which fueled the home buying market, has exacerbated the situation pushing prices into the stratosphere, similar to what we saw back in ‘the bubble’. But the fact of the matter is, lending practices are still very conservative, so even though people have been paying far more for homes the last couple years, generally speaking they were probably not paying more than they could afford. That’s the big difference.
But so what, Melissa? That doesn’t mean anything to me because I’m the one on the fence about buying because of these rates. So, what does this mean to me? Well, let’s talk about the elephant in the room – rising mortgage rates and slowing of the real estate market.
Holy wow have the interest rates shot up! It was anticipated they would rise throughout the year, and they needed to, but zoiks! Almost 4% since January? That’s unheard of! Basically, we’ve seen a decade of change in as many months, which is most certainly shocking. As of today, October 31st when I’m writing this, the average 30-year fixed rate is 7.08%, but forecasts say they will level out through the end of the year. According to Mortgage Reports most entities such as the Home Builders Association and National Association of REALTORSâ predict an average rate of between 5.39% and 6.8% in the fourth quarter. Are these rates higher than we’ve experienced over the last 10 years or so? Yes. Are they still low? Yes. Don’t let FORR (Fear of Rising Rates) get in your way of buying a home. Rates are what they are, renting is still more expensive, and there are a lot of loan programs out there with terms that may give you more buying power. For example, watch this video I recorded about ARM loans which could be a great solution for you. So, talk with your LOCAL lending professional. They will give you the information you need to make the decision that’s right for you.
Slowing market? Yes. Halted market? No. The past two years is not an accurate barometer to measure our current market against. If you look back at 2019 this is a little slower but not much. Truth is, we’re still in a seller’s market with just under four months of inventory. There are still people moving and needing to buy homes. Are some buyers jittery and holding back because of the rates? For sure. Will you need to negotiate a bit to get your house under contract? Probably. Will it still sell? Yes. As I say, there’s a foot for every shoe even if it doesn’t get to you right away. So, if you’re worried about whether you should sell or not, consult with your real estate professional. They will give you the knowledge you need to make the decision that’s right for you.
I hope this has helped, and I close with this: I had the pleasure of attending a NCWV business summit last week, where a prominent expert in our local and state economy presented about our current economic picture. After his presentation I cornered him and posted the same questions to him I have been getting, and the basis of this blog post, to see if he would answer in a similar fashion as I have been – you know, just to check my gut. Guess what? He did. Practically verbatim. (Not gonna lie, I was pretty tickled with myself….) So don’t take it from me, take it from the person who knows more about our local economy than practically anyone on the planet. It’s going to be okay! ‘Don’t Panic – it’s just a market adjustment’.
White Diamond Realty