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There is no doubt that the real estate market pendulum is swinging back from an all-time seller’s market. In a word, I would describe the past 18 months as INSANE. Sanity must return, and we are seeing those signs. But it may return in fits and starts.
It is the sentiment of everyone that is changing our real estate market. And remember, statistics about the USA, Florida or County do not necessarily apply to your neighborhood. For an accurate estimate about your home value, please contact me directly.
The National Association of Home Builders has an index designed to gauge market conditions. The scale runs from 0-100, with anything above 50 being positive. Builder overall sentiment dropped 12 points in June to 55, according to a monthly survey from the National Association of Home Builders. That marks the largest single-month drop in the survey’s 37-year history with the exception of April 2020 (when COVID lockdowns occurred). While 55 is still positive, it is down from its March number of 80.
Builder sentiment about current sales conditions dropped 12 points to 64, while sales expectations for the next six months fell 11 points to 50 and sentiment about buyer traffic declined 11 points to 37. That last number is of considerable note.
Just a few months ago we had lines waiting outside open houses and multiple offers on the first day, sometimes sight unseen. What happened since March?
Interest rates are a large part of the story that makes buyers scarce now. Mortgage applications to purchase a home were 19 percent lower than the same week in 2021. With rates almost double what they were in January 2022, Buyers have lost considerable purchasing power. Now that buyers can’t buy the home they dreamed of at the beginning of this year, sentiment has turned sour. In fact, mortgage demand just hit the lowest level since 2000, according to the Mortgage Bankers Association’s seasonally adjusted index.
A number of Mortgage Loan Officers report that lenders are starving for someone to talk to, let alone lend to. Underwriters are calling their MLOs asking if they can do anything for them today. Some lenders are closing down all together, while most are cutting staff. The mortgage gold rush is over.
The average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) is 5.82 percent with 0.65 points (including the origination fee) for loans with a 20 percent down payment. That rate was 3.11 percent the same week one year ago.
Another factor of the Fed raising the prime interest rate is that it also pushes credit card and auto loan rates up. Those increased payments crush potential buying power for homebuyers.
“Purchase activity declined for both conventional and government loans as the weakening economic outlook, high inflation and persistent affordability challenges are impacting buyer demand,” said Joel Kan, an economist for the Mortgage Bankers Association.
Inflation is a huge factor. Food inflation in the United States accelerated for a 13th straight month to 10.4 percent in June of 2022, the biggest increase since February of 1981. The food at home index rose 12.2 percent, the largest 12-month increase since the period ending April 1979. All six major grocery store food group indexes increased over the span, with five of the six rising more than 10 percent. The index for food away from home rose 7.7 percent, the most since November 1981. When you have to spend more to eat, there is less for everything else.
Gas prices seem to be a roller coaster ride, but we all know that a “comfortable” price has a “2” in front of it. This adds to our real estate woes too.
Locally, sellers have taken note of the many pressures on the market. It is as if the collective consciousness of anyone thinking of selling said, “Oh, I have missed the top and I better get on market right now so I don’t lose more money.” This is one of the biggest reasons for our current perfect storm.
The core of how any product is priced is based on supply and demand. Put simply, we have more supply and less demand. Guess which way the pricing is headed. Unless we have a new contribution to the economic picture, the next 12 months will show a downtrend on home sale prices. Reality and normalcy have entered the building. Mark my words.
Real Estate Update
As of 7/24/22, there were 102 properties for sale in Pinecrest, 33 homes pending sale and 4.6 months of inventory. This is a trend towards higher inventory! If you’re ready to move, it’s easy to get started at miamihal.com/getstarted. I invite you to view past episodes of my The MiamiHal Real Estate Show at miamihal.com/the-miamihal-real-estate-show to hear from experts.
Hal Feldman (MiamiHal) is a Realtor with RE/MAX Advance Realty. You can contact him with your story ideas or real estate questions at www.MiamiHal.com, Hal@MiamiHal.com or www.facebook.com/MiamiHal
