DeLacey Homes

What does it mean? This time is different than the last time.

by Luke DeLacey

I hope your summer has been going well! Here is your July update on the real estate market.

The talk of the real estate market slowing down from the fast-paced market of the last couple years has been going on since the beginning of the year. Now in the last month or two, we have certainly begun to see what everyone is calling a “shift.” Along with this shift, you’ve likely heard, “this time is different than the last time!” This phrase has been used to calm fears of a large downturn in the real estate market.

This email walks through why this market slowdown is different and much less severe than the last time.

In short:

The downturn in 2007 was caused by sub-prime mortgages being written with out much, if any, asset verification. When these mortgages begin to go into default as interest rates were increased on many of the adjustable-rate mortgages, borrowers begin losing their properties as the higher payments became less affordable. The investors that held these notes were unable to recoup their losses as the insurance company that insured these mortgages did not have the funds to cover all the mortgages that were in default. This coupled with how these mortgages were used as financial instruments brought the housing market and other financial markets down.

Today, the market slow down is being caused by rapid appreciation coupled with rising interest rates making it more expensive to buy.

Something to keep in mind:

A recession does not equate to a fall in the real estate market. Most recessions have not led to falls in the real estate market.

Why is the real estate market remaining strong?

Outside of the fundamental differences between today and 2007, a large factor in the health of today’s real estate market in comparison to 2007 is the nature of the demand and the supply and demand economics.

The generation that everyone thought would not buy houses, as it turns out, are buying houses! Millennials have created a spike in “new households” being created. A new household is created when someone who has not previously owned a home buys a home. There are currently 200,000 less homes being built than there are buyers for these homes in the US. There is still a large demand for homes. This demand is coming from the necessity of a place to live and not the desire for a second/vacation home.

A couple quick stats to illustrate the different market condition of today and 2007:

Available inventory in the Twin Cities: Today: 7,708 | June of 2007: 36,943
14,000,000 more households were created in 2021 compared to 2007 in the US while there are 3,000,000 less homes for sale today versus 2007.

Have any questions? Don’t hesitate to reach out.

What’s happening in the Real Estate market?

by Luke DeLacey

A Little History:

Over the last few years, the Twin Cities area has seen a significant increase in real estate market values. In May of 2020, the median sales price in the Twin Cities was $285,000. In May of 2022, the median sales price was $350,000. This is a significant increase that was driven by low-interest rates, and bidding wars caused by a lot of buyer demand combined with very little inventory.

What’s Happening Today?

Today’s interest rates are hovering around 5.5%. This is up from the 2.5% to 3% interest rates we saw 6 months to a year ago. Inventory remains low with about 6,300 listings in the Twin Cities area which is just a little lower than this time last year.

What Does This Mean as a Seller?

In the objective view, we are in a seller’s market. Homes are being priced today using the recent sales that when listed, were bid up in multiple offers and now that they have closed, are being used as comparable sales to price the new listings. This means that today’s sellers are getting the price past sellers got. Due to higher interest rates softening buyer demand, sellers are not as likely to get the additional 10%-15% on top of the list price. Many appropriately priced listings are still selling above list price, however, it is not to the degree seen in the recent past. To reiterate the previously made point, however, Sellers are still fully reaping the benefits of the significant appreciation of the past couple of years.

What Does This Mean as a Buyer?

For buyers, the rising interest rates have made it more expensive to buy. On the flip side, buyers are not needing to compete as aggressively as they did in the past. Some Buyers have thought of playing a waiting game to see where the market will go. The waiting game is unlikely to be fruitful as interest rates are unlikely to come down and housing prices are unlikely to drop due to the continued inventory shortage causing demand to be greater than the supply. Rent prices have also increased making renting an unattractive alternative.

What Does This Mean if You’re not a Buyer or a Seller?

If you don’t intend to make a move but currently own a home, you’ll likely see an increase in property taxes. You should also check with your home insurance provider to make sure you are properly insured for the current value of your home. As a renter that does not plan on buying, you may see an increase in rent. If you hope to buy but are wondering if now is a good time, it is likely as good a time as any time in the near future to buy.

Have any questions, comments, or concerns? Feel free to reach out!