Word on the Street: Jack and Jill Talk Real World Real Estate Trends

There are a variety of opinions about where the housing market is heading in 2022. People draw different conclusions from the very same statistics. In the final analysis, it boils down to what you choose to believe about what you hear or read. Let's eavesdrop on a couple of neighbors sharing their thoughts...Since I’m not a credentialed financial advisor, the answers (observations) I give are strictly my opinion.

A Preface

I'm a writer by nature and profession - mainly fiction. Sometimes - without warning - I drift into an author's state of mind and start making up stories based on things I find interesting. I'm fascinated by real estate so I wrote a little drama based on two neighbors debating current housing market trends.

Jack and Jill Meet on the Hill

“Did you hear that existing home sales fell 2.7% from February to March (2022)?” Jack asked Jill as they approached each other on the hill in front of their homes on Elm Street. “That’s down 4.5% from a year earlier. And despite that downward trend, U.S. home prices still surged another 15% to a new record.”

“Yep, my real estate buddies say it’s the hottest housing market in 15 years,” Jill mused.

“Well, I don’t doubt it, and some of that surge came in the face of significant mortgage rate increases since the first of the year,” Jack proffered. “I understood that sort of appreciation prior to 2022 due to ultralow interest rates, but what about now?”

Jack paused for a moment and then continued. “How long can that kind of appreciation last with mortgage rates heading north of 5% this month…highest since 2011, I’m told. Something’s gotta give!”

DRAMATIC PAUSE

Jack and Jill Swap Gossip

“Some of my friends are predicting home sales to decline 10% from last year as a result of those rate increases,” Jill said. “Seems to me that a combo of higher mortgage rates and very low home inventories…used and new …would result in a bunch of potential buyers finally throwing in the towel.”

“It will, Jill, in fact, some statistics are suggesting that’s already the case,” Jack replied. “According to the Mortgage Bankers Association, mortgage applications were down 3% last week from the week prior…and 14% from a year ago.”

“It certainly fits what I’m hearing,” Jill said. “My real estate cronies tell me that an appreciable number of their preapproved buyers from March are no longer on the market. The herd is thinning out.”

UNCOMFORTABLE SILENCE

Jack and Jill Spit Facts

“Interesting,” Jack countered, “because there are still a number of folks who expect home prices to keep climbing – mostly, I suppose, due to limited supply. According to the National Association of Realtors (NAR), the million or so homes for sale at the end of March was down 9.5% from March 2021. And yet, the median selling price in March rose to $375,000. It’s gotta be due to those low inventories of both new and used homes…still powerful price motivators.”

“But let’s not forget that springtime is often the busiest season for home sales,” Jill interjected.

“Granted, this sudden increases in mortgage rates is scaring some buyers, but it has others even more eager to buy to beat anticipated future rate increases."

“You’re right about springtime. Typically, 40% of existing home purchases occur between March and June according to NAR,” Jack said, “But didn’t you mention that your real estate pals are expecting sales to fall short of last year’s pace due to an erosion of buyers?”

“Yeah, but like you suggested, Jack, the number of home on the market is likely to remain low,” Jill said. “Still, if mortgage rates continue to rise, that alone will become a factor…maybe not yet, but at some point, it has to.”

“I agree, but in the meantime, pity the poor entry-level buyers.” Jack declared. “There are even fewer lower-priced homes on the market. I suppose that’s why the percentage of first-time buyers in the market fell to 30% in March down from 32% a year ago.”

Jack and Jill Get Dark

“Jack, speaking of new home inventories, what’s the latest on that front? Is new construction still being impacted by supply chain and labor shortages?” asked Jill.

“Yeah,” he replied, “but despite those factors, building activity is actually increasing due to the continuing strong demand. Housing starts rose 0.3% in March over February. And residential permits for future home construction rose 0.4%, both positive bellwethers for the residential market. Also, there is another sign that the market is cooling. According to real-estate brokerage firm, Redfin Corp, about 13% of sellers dropped their list prices in the four weeks ended mid-April. And recent significant declines in the cost of lumber should help out. However, I doubt if those lumber price reductions will dribble down to homebuyers very quickly…if at all.”

“Probably not,” Jill muttered, “The buyer mood is still gloomy out there. According to my sources, not many potential homebuyers are very jacked up about the prospects of buying that new abode in the near term…certainly not at what they consider a reasonable price.”

Jack and Jill Accept REAL-ity

“Well, it’s no wonder that pessimism fills the air,” Jack agreed. “The Federal Reserve said that in February, prospective buyers had a 43.3% likelihood of owning a home in the near term, down from 51.6% a year ago. And only 24% of those surveyed in March by Fannie Mae said it was a ‘good time to buy a home’ - less than half the percentage of a year earlier.”

Jill agreed, “Prospective buyers are simply not optimistic about the prospects of buying any home – new or used – if not because of availability, then because of price; if not of price, then because of surging mortgage rates…not to mention the intense competition for available homes from cash buyers."

"Who knows what tomorrow brings," she said. "It’s hard to see how home-price growth can continue as more and more potential homebuyers are priced out of the market by rates and exorbitant prices.”

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