When looking at recent market changes, it is important to remember how overheated the real estate market was in 2021 and early 2022 — many quarter-to-quarter and year-over-year comparisons are distorted by the unusual sometimes frenzied conditions that prevailed then. As a result, It is wise not to jump to definitive conclusions based upon a single quarter's data: the real estate market is not crashing it is still in a period of adjustment after unpreceded price increases.
Unfortunately, comparisons with the crash of 2008 continue to be made, but the precipitating factor in the 2008 crash simply does not apply today i.e. tens of millions of households talked into home loans they could never afford, forcing a tsunami of frantic home sales during the great recession.
In the same vein, it is important to bear in mind that to date, mortgage payments as a percentage of income, and loan delinquency rates are both close to all-time lows; most homeowners' mortgages are held at historically low rates. There has been no surge of desperate sellers. There are certainly major economic challenges at play right now, but again a market correction is not a crash.
The above-described context has already been commented on hundreds of times; therefore, I thought I would share with you a few facts explaining why in the current real estate market waiting for prices to fall may not be a good idea for buyers.
Fact #1: The housing market is slowing with sales declining and home prices softening. Home sales in California dropped 31.1% year-over-year in July 2022 and last month was the third consecutive month with sales falling more than 10% from a year ago.
Fact # 2: Prices also began to moderate in the past couple of months after the statewide median price set a record high in May. The July median price in California was the lowest in five months and the less than 3% year-over-year growth rate was the smallest gain in the past 25 months. As a result, it is more than likely that with rates rising and the economy slowing, the downward shift in the housing market will continue as the year approaches its holiday season.
Fact # 3: Housing supply has been on the rise but will level off in the fall as seasonality kicks in. Inventory will be at a level higher than what it was a year ago, but supply for the rest of the year will remain below the norm by historical standards. In addition, mortgage market fundamentals are much better than what they were during the 2008 financial crisis, which will help prevent another foreclosure crisis. As such, tight supply market conditions will continue to provide support to keep housing values from falling too fast.
Fact #4: With more sellers reducing their prices in recent months, some buyers may delay their home-buying decision until next year as they wait for prices to fall further. While the price of a property is an important variable to consider when buying a home, interest rates should be an equally important factor to take into consideration when buying a property with a home loan. Mortgage rates are near their highest level in almost 14 years and will likely climb further as inflation remains elevated.
To conclude, buyers waiting for prices to fall could end up paying more on their monthly mortgage payments because of the higher interest rates. In other words, with prices not expected to drop low enough to offset a higher interest rate, it may not be a good idea for buyers to wait until next year if they find a property that they like and are financially ready to buy.
Should you have any real estate-related questions, feel free to contact me anytime.