Learning Center

MARKET WATCH – November 2022

This month’s market report counters popular news headlines with some surprising trends indicating that buyers should act quickly.

Video

Get a high-level overview in the recap video which presents some key findings then download the report to learn the details.

PDF Download

Download the Market Watch report, a thorough analysis of the market conditions and forecast by Managing Broker, Nathan Jennison. Nathan looks at the factors contributing to the gloom and doom news headlines and then takes a deep dive into the data that tells a very different story.


Stay Ahead of the Market
Get the Market Watch newsletter delivered straight to your inbox.


Transcript

Is now a good time to buy a home? The answer, according to the Nathan Mortgage Market Watch for November is, yes.

Now is a good time to purchase, and do so quickly before buyers flood the market again. Current news and media headlines caution against buying with some forecasting an impending drop of 20 to 30% in housing valuations. There are understandable reasons for these alarm bells and yet even stronger reasons to expect and plan for the opposite. Let’s look at the facts driving these panic-filled headlines then we can jump into some deeper insights.

First, interest rates have climbed from 3.269% to 6.967%. What about home values? Housing has seen a 41% increase in the median home value since the 2nd quarter of 2020. What about consumer sentiment? In September, the Fannie May Home Purchase Sentiment Index fell to its lowest level since October 2011, with only 19% of consumers believing now is a good time to buy.

It’s understandable that high interest rates, high home valuations, and a decline in consumer sentiment are driving these headlines. While all three are true, it’s not the whole picture.

Keep in mind, that in the media, fear-filled headlines get clicks and drive ad revenue. So it’s no surprise that careful analysis might reveal another story. Let’s take a closer look at what many news reports are missing. And why now is the time to buy as much property as possible, with rentals being a particularly valuable acquisition.

First, know that most bleak real estate predictions are comparing stats that measure this year against the last 1 to 2 years. That’s a big mistake because 2020 and 2021 are anomalies or abnormal periods. We can all agree these years are out of the ordinary and this greatly skews the market baseline.

Next, let’s look at Days on the Market, which is an indicator of housing inventory. The news headlines are voraciously citing this increasing number to support their bleak outlook. Real estate experts know that this figure always grows this time of year, peaking in December and then falling until July. Between winter, the holidays, and school calendars this is perfectly normal for this figure. People are less likely to move in snowy conditions or mid-school year and tend to favor home shopping when there are more homes to choose from.

If we look closer, what is actually abnormal is that 41% of homes on the market have a contract-pending status. Normally, this figure is around 25%. More houses in contract-pending status equals less inventory. Another factor to review is the the Home Vacancy Rate. This has dropped to under 1% and shows a continual decline. Less vacancies equals less inventory.

As less homes are available to purchase more people are competing for rentals, driving up the cost of rent. Increasing rent costs confirm that we indeed have less inventory.

Now, let’s look at the number of households created against the number of new single-family homes built. 12.3 million households were created from January 2012 to June of 2021. Only 7 million new single-family homes have come on the market. We are short a whopping 5.24 million homes.

The construction sector is at its slowest pace since 1995. According to Freddie Mac, we also have a construction labor issue. The average age of tradespeople in the U.S. is now 55, and for every three tradesmen who retire there is only one entering the trade to replace them. With Baby Boomers retiring in record numbers, we are facing a labor crisis that will further drain builders’ abilities to close the shortfall of needed housing. Trade and labor cost is rising dramatically, along with materials cost, which also limits the building of starter homes. It’s clear we have a huge inventory shortage. Additionally, many homeowners who would normally be selling are staying put as they are unwilling to exit their current home loan that is at a 2 to 3% interest rate. It’s understandable but is contributing to the low inventory.

Because the market is driven by supply and demand, and we are so short on supply we can confidently purchase knowing that home values will continue to appreciate. Sure interest rates are higher than we might like, but if you buy now, there is less competition from other homebuyers, and you can get great deals on pricing and seller concessions.

Alternatively, if you wait for the interest rates to ease or for the media to feel confident you will be right back in a hot market, competing for the same home as other buyers and paying way over asking price. We know this because the market is so very low on inventory and the demand will be there just from the sheer number of households forming.

Right now, many of our realtors are landing ten to fifteen thousand in seller concessions. These can be applied to loan costs, title fees or even to buy down the interest rate! Many Buyers are finding their lowball offers countered or outright accepted.

Buyers who can lock in savings on real estate purchases now, even at higher interest rates, will be able to take advantage of this unique situation to optimum advantage. When the general population becomes confident in the stabilization of the housing market, buyers will again scramble to capture the limited supply of housing. With interest rates likely to fall as they have in every recent recession, far more houses will likely see multiple offers and again sell above listing prices.

Waiting until rates fall could be a critical mistake. Get out ahead of the mainstream buyers who will flood the housing market at that point and again create high demand against weak inventory.

To learn more download the Market Watch PDF to review the details, pour over the data, and see the resources that support this month’s market watch. You’ll find credible sources like US Census Data, Bureau of Labor and Statistics, and more. No clickbait headlines or fear-filled media here, just facts and real economics.