By Morf Morford
Tacoma Daily Index
In a sense, we all knew this had to happen. Like every commodity, a home only has value if a potential buyer can afford it. Average pay went up about 5% annually the past few years. The cost of housing, in many areas, went up 20% (or more) per year.
You don’t need to be a highly paid financial analyst to see that the math just does not add up.
Add in increases in interest rates and you have a housing market that looks like a game of musical chairs with fewer and fewer players.
And then there were none
“The buyers just stopped buying,” said one agent with Redfin.
Some listings now sit for weeks without even a single showing. In many desirable neighborhoods, where just a few months ago, if a house was on the market for one week, neighbors were amazed. Now they sit on the market with little interest.
Nationally new home sales plunged in April, falling 16.6% from March to 591,000, well below economists’ forecast of 750,000. Existing home sales have declined for three straight months, according to the National Association of Realtors. And, thanks to a couple years of a construction boom, new housing inventory is accumulating. Available supply of unsold new single-family homes jumped by 8% in April to 444,000, a 13-year high.
Interest rates
And there are interest rates; mortgage rates have soared since March with the 30-year rate now hovering at around 5.45%, the highest it’s been in years.
Most of us will never see interest rates back to 3%. Ever.
In fact many economists say that interest rates could hit 8% by January. That’s only about six months from now.
Home prices
Home prices haven’t started falling. At least not much, and not yet. Home sales (excluding condos) in King County increased, climbing nearly 20% from a year ago. But many real estate professionals expect prices and values to drop about 10% by January of 2023.
But sales have started falling. New single-family home sales dropped by 16.6% month over month; the biggest monthly drop in nearly nine years, while sales plunged 26.9% year over year to a seasonally adjusted annual rate of 591,000, according to data recently released by the U.S. Census Bureau and Department of Housing and Urban Development.
This had to happen
I had a recent (un-requested) housing appraisal. Our home was valued at more than five times what we paid for it.
In what economy, on what planet, is that price affordable for any typical family?
We bought our house almost 30 years ago, with two incomes (and some borrowed money from family).
As I mentioned at the beginning, a home is a commodity like many others.
But in a few ways, housing is a commodity not at all like others; it’s where we live, and often the largest single purchase we will ever make.
Speculators and “flippers” abound, but the majority of home-buyers intend to occupy their investment, for many years. In short, many home-owners are like me; our homes might be worth record prices – but we have no interest in selling. For a long, long time.
Lumber & Labor
The price of lumber has dropped dramatically (down 39% from their March high of $1,357 per thousand board feet).
Labor, of all kinds, is, and will probably continue to be in short supply.
The traditional single-family home might be the ultimate “American dream”, but what potential buyers want – or can afford – or are willing to accept – has been changing. And will keep changing.
The housing market is proving that even the most basic foundation of the economy is not immune from irresistible market and demographic pressures.
Housing is not in bubble territory. Yet. But the variabilities in interest rates and prices are not far from it.
In fact for patient buyers, this might be the most opportune time to buy in years.
COVID and the work from home movement shifted our housing market, but as that trend retreats, home office space – and commuting – will return to something approximately at least, resembling pre-COVID conditions.
Where the real estate market is going is anybody’s guess, but whatever it looks like, it won’t look like the past couple years.
