Housing Market Trends August 2022 | Residential Snapshot

Last Updated on August 2, 2022 by Luke Feldbrugge

Welcome to the Housing Market Trends monthly update for August 2022 from Homes for Heroes. This report focuses on the residential real estate housing market. We listen to the experts and boil down what they have to say to assist you, our heroes, with decision making regarding buying a home, selling your home, or refinancing your mortgage.

If you are like us, you have one eye on the overall economy and another eye on the real estate market. It can make you a little dizzy. We’ve got inflation at a 40 year record high, higher mortgage rates (but maybe stabilizing), housing prices decelerating and volatility in the markets, it’s hard to know what to concentrate on. More importantly, if you are in the real estate world, what does this all mean for buyers, sellers and you.

Let’s Call This a Recession

Economists of all stripes like to debate whether a downturn in the economy is a recession or not. Let’s just go with the definition that two quarters of negative GDP equals a recession and leave it at that. Under that definition, we are currently in a recession (Q1 was -1.6% and Q2 was -0.3%).

Now that we have that cleared up, what are the ramifications of a recession for the real estate market? In the short term, it’s anyone’s guess. We are currently seeing a definite slow down in housing in terms of single-family home sales, housing price increases and the number of offers made on U.S. homes for sale.

In the long-term, recessions tend to drive down interest rates. That’s a fact. Often, however, interest rates go up at the beginning of a recession and drop back down near the end. We are seeing the uptick now at the beginning of this downturn, but history teaches us that we will see low interest rates again as the recession runs through its paces.

Mortgage Rates Recessions

Of course, reduced GDP and interest rates aren’t the only players on the field. We also have inflation and the Federal Reserve. These two conspire to keep mortgage interest rates high as the Fed tries to tame inflation by increasing interest rates. This additional dynamic may test our patience in the short term, but we need to trust that historical precedence will prevail over the long term and interest rates will begin to drop.

If you are an optimist, watch for signs that this recession will be short or that the Federal Reserve can construct a soft landing.

Inventory in the Current Housing Market

If you are looking for good news in the residential real estate market, inventory of single-family homes might be it. We have been in a virtual desert of low inventory for years, but we are finally seeing some relief. If you go by the numbers, we only had 1.6 months of housing inventory in January and that has increased to 2.6 months of available inventory now. That’s a slight increase, but it’s going in the right direction if you are a home buyer. What’s normal? In a balanced market, an average rate of 6 months of inventory is the norm (but we haven’t seen that since 2012).

One factor contributing to the increased number of homes, besides the slowing down of housing sales, is more new monthly listings.

Bar Graph Jan-May 2022 Months Inventory Homes for Sale

In addition to increased listings, builders are making inroads into increasing the supply of new homes.

Bar Graph New Home Monthly Inventory Non-Seasonally Adjusted 2021-2022

All in all, inventory levels are really shaping up, and 2022 could be a much better year for prospective buyers. In many respects, the new normal for the real estate market is the old normal.

“Home sales have essentially returned to the levels seen in 2019 – prior to the pandemic – after two years of gangbuster performance.” – Lawrence Yun, Chief Economist, National Association of Realtors.

In terms of the future of housing inventory, the predictions for 2022 have dramatically increased.

Bar Graph 2022 Original vs Updated Forecast Inventory

Home Prices

Bar Graph Home Price Forecasts 2022

The fear of the trifecta of recession/inflation/increasing interest rates is that housing prices will drop. Sellers, in particular, see headlines about the housing market slowing down and assume that means their houses are going to lose value, and they won’t be able to sell them for the prices we saw for the past year or two. There is nothing to indicate that. Not. One. Thing.

As housing sales slow down, it may signal the end of the frenzy of sales and prices that happened from 2019-2021. Sellers may need to lower their expectations, but that doesn’t mean their homes are losing value. For example, the number of offers they receive for their home, on average, is dropping. It peaked around April when the average seller would see 5.5 offers; it’s now about 4.2 offers. Likewise, when the real estate market was at its peak, sellers would receive an average of 61% of offers-over-asking. Now they are seeing a little over half (55%) of the offers over the asking price.

The bigger story is that housing price growth is continuing, but the increases are decelerating not depreciating. If you are a seller, your home’s value is still going up, as well as your equity. Prices for a typical home are just not going up as fast as we have seen during the recent 2019-2021 housing boom, rather they are just returning to pre-pandemic levels. As we said before, the new normal is the old normal.

Buyer Moodswing?

All of these economic conditions add up to one thing (Ok, maybe more than one): the return of hope for home buyers. Let’s be honest, your average home buyer has taken a beating these last two years. The fulcrum of supply and demand has been out of whack in the real estate market, driving up prices, driving down inventory, which then pushed even higher prices. The anecdotal stories of sellers receiving dozens of offers at way-above-asking-price didn’t help calm down the first time homebuyers out there.

Many dropped out of the housing market and stopped looking altogether. They were frustrated and discouraged–the combination of scarcity and extreme competition acting like a one-two punch for buyer demand.

Those who dropped out may be ready to jump back into the market. With more homes to look at, they might become interested again. Their desire for a home has probably remained strong–but temporarily squashed–and now may be a good time to tap back into their dreams of owning a home. The scales of housing supply and demand may be ever-so-slightly tipping back toward balance.

That said, demand is still stronger than supply, so it is still a seller’s market. As one expert put it, during the last few years, the record pace of the real estate market has been like driving at 100 mph, which is fast and exciting, but ultimately a bit dangerous and unsustainable. The market is now returning to a more reasonable and safe 60 mph, which is good for all of us.

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