The real estate world is a very confusing place right now. Mortgage demand and home sales have plummeted in recent months but supply remains even lower. While prices are sliding they are not plummeting. The only thing everyone can agree on is that “no one can agree on what comes next” writes Nicole Friedman and Nick Timiraos in the Wall Street Journal.
- Supply. Unlike 2008, this downturn is not causing a flood of homes on the market. In fact, with skyrocketing rates, we could have the exact opposite problem. “Real-estate agents say unless people have to sell their homes due to life events like job relocations or divorces, they are staying put. Almost 70% of households with mortgages have rates below 4%, and they are reluctant to trade in a low mortgage rate for a higher one on a new home.”
- Wait & See. While affordability has pushed many wannabe homebuyers back into the rental markets, a lot of other protentional buyers are taking a wait-and-see approach. After all, very few want to buy in a declining market. Sheryl Palmer, chief executive of Taylor Morrison Home Corp told the Journal, “Our buyers can afford to buy…So much of this is sentiment, and fear, and trying to understand where things are going.”
- 80’s Are Back. Doug Duncan, chief economist at Fannie Mae, told the journal this downturn could look a lot more like the 1980s than the late aughts. Back then the Fed raised rates to double-digits to address very high inflation and Duncan notes, “People simply stopped transacting…As soon as the Fed got control of inflation and started working it down, you saw transactions start to pick up.”