Since the beginning of the Covid-19 pandemic in 2020 and 2021 Real Estate saw double digit appreciation in home values.
Mortgage Interest Rates on a 30 year fixed rate reached the lowest level in December 2020 at 2.68% with the annual average rate of 3.11% according to Freddie Mac and 2021 averaged of 2.96%. Rates bounced above and below 3% during this time.
Federal Reserve Chairman Powel is committed to bring down inflation which rose to 8.5% in March and around 8.3% in April. This level of inflation was last seen about 40 years ago in the early 1980s. The Fed Raised the Fed Funds Rate by .25% in April and .5% in May. These changes filter down to impacting consumer rates for credit cards, car loans, personal loans, mortgages etc. So if your borrowing money expect to pay a higher interest rates this year. In 2022, 30 year fixed rate mortgages have already jumped to over 5% thus reducing consumers buying power.
The federal funds rate is the interest rate that banks charge each other to borrow or lend excess reserves overnight. 9 Law requires that banks must have a minimum reserve level in proportion to their deposits. This reserve requirement is held at a Federal Reserve Bank.
The historical target inflation rate the Fed is attempting to accomplish is 2% per year. Inflation running over 8% the Fed has announce more increases in 2022 to get inflation down. The trick is to do this without crashing the economy. The Fed didn’t start increases until this year based on issues related to Covid-19 even though economic data showed inflation from gas prices, which influences just about everything in the supply chain for consumers, issues with supply of goods and high demand. Unemployment is at low levels. However, wage increases have not kept pace with inflation.
Chairman Powel Says Fed Will Not Hesitate To Keep Raising Rates Until Inflation Comes Down
NAR Chief Economist Lawrence Yun “… if A Recession is coming, it will not be the kind we experienced in 2008”
Lending guidelines leading up to the recession in 2008 were exceptionally liberal. Basically, if you could fog a mirror or had a heartbeat you could get a mortgage. Low down payments and risky lending practices resulted in over extended home owners. As prices rose many started using their homes like ATMs and cashing out huge sums of equity and spending it to artificially impact their lifestyle. When home prices started declining many owed more on their home than it was worth. With little financial investment in their homes when the market shifted many started dumping properties they really couldn’t afford. Eventually, upside down properties became foreclosures or short sales. The Government was kind enough to waive taxes on the forgiven debt for a time.
After the crash lending guidelines became much more conservative for both purchase and refinances and lending limits on investors financing.
A better comparison to our current situation is to go back to the Baby Boomer time frame of 1978-1982. Here is a great article: Housing: Don’t Compare the Current Housing Boom to the Bubble and Bust
I was helping home buyers and sellers in the northwest suburbs outside Chicago. Many first time buyers wanted to purchase a single family home. However, with high interest rates in the 1980s they could only afford to buy a town home or condo, hold it for 3-5 years until the value went up and they could sell for a profit. During that time their income probably increased as well. Then they had a larger down payment and could purchase a single family home.
Unfortunately, Greater Metro Phoenix has restrictions on high density housing, so many builders didn’t construct town homes or condos, instead single family homes were and are constructed one at a time. This gives us fewer choices in the valley for entry level homes as prices have increased dramatically in the last few years.
Why Phoenix—of All Places—Has the Fastest Growing Home Prices in the U.S.
“The Phoenix metropolitan area has been one of the fastest growing regions of the U.S. for several years, growing about 20% in a decade. But recently that growth has been sharper; in 2020, 291 people moved to Maricopa County per day, according to some estimates.” The increase in population will continue to impact demand.
Phoenix Metro Real Estate Market is finally seeing an increase in inventory!
May 16th, 2022 Active Inventory just under 9000 homes, 27 days closed on market and 1.13 months supply of homes, sales prices are still averaging over 100% of asking price. (Active Distressed properties Eg. Foreclosures, short sales were a whopping 30 homes in ARMLS) Inventory has been increasing since the beginning of the year. So a little less competitive for buyers and not as many offers coming in on homes for sale.
However, if we compare these numbers to same week in 2019, which was Pre-Covid, over 17,000 active homes for sale. 62 Days Closed on market and sales prices were 98.7% of asking price. Fewer than 200 home were distressed. The consensus from experts is we would need 25,000-28,000 active homes for sale to be in a balanced market between demand and supply. Even Higher inventory before we would see a buyer’s market.
Short term expectations are for homes prices to increase at a more modest pace – not double digits. Interest rates will continue to rise. As inventory rises the time it takes to sell a home will increase. Between higher home prices and increasing interest rates some first time buyers will not be able to purchase or they are able to buy less home to at least be able to become home owners. KEEP In Mind Owning Your Own Home is a LONG Term Investment. Estimates range from 40%-70% of household wealth is from home equity growth!
As home prices have increased the percent of homes under $500,000 has dropped to less than 50%, $500,000-$999,999 is almost 39% of home for sale. In 2019 over 70% of homes were under $500,000 and a little over 18% were $500,000-$999,999.
In you have been waiting to investigate buying and/or selling a home now may be time to do so. If you have questions or would like to discover what you can do in this market please feel free to reach out to me.
Jamie@JamieLevy.com or Cell Phone 623-332-7755