Everyone is using this phrase. To be honest, to a realtor’s ears, this is sweet music. Thankfully, throughout COVID’s reign and massive impact on the housing market, I have been able to adapt my business in such a way that has catered to sellers and purchasers. My sellers have made a killing on their homes, some of them in such a way that the market allowed them to correct a poor purchase from years ago. With the help of my preferred lender, I have also been fortunate enough to retain buyer traffic. Interest rates were at historical lows, and the world let you know. This resulted in what could be called the most volatile housing market we have seen in years. Sellers making top dollar, and purchasers capitalizing on these low rates.
Fast forward to July 2022. We have 5.5%(ish) interest rates, and home prices are still trending upwards. Granted, from May to June, they only increased .5%. How does this work? Let’s apply some perspective. I am going to use some phrases and verbiage that have been overused, but bear with me. The definition of a balanced market is 6-7 months of inventory, or homes for sale. The Greater Richmond area is sitting at roughly 1 month. This means that plain and simple, we still have a low supply issue. Arguably so, this does a decent job of explaining why a 100%+ interest rate hike over the past year has not resulted in a complete crash. One of my colleagues worded it very well – “we are not looking at a crash, we are beginning a correction.” Home purchasers are demanding fair market value, which remember is subjective. How much does anything cost in the world? Answer – whatever someone is willing to pay.
Selling and purchasing a home is beginning to look different. At a certain point, you needed a heartbeat and maybe a sign in the yard, and a purchaser would knock down your door begging to buy your home. Some people jumped into that market for a capitalist venture, others because their timeline called for a move. Educating sellers on the reality of buyers carrying more leverage are conversations that have to be had. To my purchasers, those that have been waiting, there is hope for you! Interest rates may be comparatively high to 2.5%, but run the numbers against historical charts. Better yet, ask your parents/grandparents what their first interest rate was. Do not purchase above your means, but there is a beautiful term that offsets higher interest rates – and that is a re-fi. Nearly everyone did it throughout the pandemic, history will repeat itself! Hopefully not COVID, for the love of everything good, not COVID. Talking specifically about lower rates.
Final thought is a short word with big connotations. Recession. The definition is “the shrinking of the economy for a prolonged period of time.” As our country approaches uncharted territory, keep your head on a swivel. I still do not believe that we are in for a housing crash (reference my April blog), but more of a correction. Correction can and most likely will come with recession. If you crutch to THE Dave Ramsey for information, then you know his outlook is that the upcoming recession will be short, and necessary. Rates are increased to combat inflation, and are decreased to combat recession and bring buyers into the market.
The purpose of this blog is to educate. If you have questions or concerns based on my points, feel free to reach out directly.