“How’s the real estate market?” This is a question I hear probably 25 times a week. I usually answer “brutal” or “my therapist is making good money.” All joking aside, things have been a bit of a roller coaster in the first half of 2022.
Interest Rates and Low Inventory
For several consecutive years, the residential inventory has been shrinking, meaning each year fewer houses come for sale on the market. Until last fall, interest rates had trotted down to the lowest interest rates that I have ever experienced, but then started to rise. Right now, we are sitting about a full point higher than we were last year at this time. Each time I check in with my primary lender, the rates have made another increase. This does have an impact on purchasing power for buyers. For example, the buyer who was approved for $500,000 now may only qualify for a $450,000 home under new rates, and the home that was $450,000 last year has seen a market increase to $500,000. This has caused some buyer discontentment.
Home prices continue to climb, and I see a lot of chatter on social media about a bubble burst, or a market crash, claiming that prices have to come down. Unfortunately, no real estate analysts predict that. We still have a staggering number of buyers who have been unable to purchase a home. Purchase volume rose 1% for February, still down 8% year over year, and year over rents have increased 12.6% nationally. People need housing and it will take some time for the buyers who have been unable to purchase to find their housing.
There won’t be another housing crisis like 2008, just like there won’t be another Great Depression of 1933. We are always evolving as a species, forever learning, and taking notes. Since 2008 we’ve had strict rules put in place on margin trading and our Federal Reserve has a lot more experience than in the late 1920s and early 1930s that led to those circumstances. The “bubble burst” in 2008 occurred largely due to fraud and the regulations in place now prevent that from reoccurring. I’m sure there is something on the horizon, but it will be different than what we have seen in the past. I’m hopeful that we have strengthened things enough to protect our biggest assets—our homes.
Hard Times
2019 brought us COVID – a global pandemic and recession; 2021 brought us pent-up buyer frustration due to forced seclusion and 2022 came in strong. The Russia and Ukraine situation stood that strong start on its nose. Gas lines are forming, there’s a food shortage, and things do feel shaky. This doesn’t mean housing is collapsing. In 2017/2018 rates were going up; our US balance sheet was getting stronger, our stock market was producing, and things were moving at a steady pace. COVID interrupted that. Rising interest rates aren’t terrible, but rising rates coupled with war are not ideal. Rising rates with $5.50 gas prices (causing us to question the affordability of the home we want) starts to cause ripples.
Will interest rates go back down? I don’t know. If you follow yield curves, an inverted yield curve is the indicator economists use to tell us if we’re headed toward a recession. Inverted yield curves happen when long bond rates drop below short bond rates. Recessions usually mean rates come down to encourage spending. Economic forecasting is above my pay grade, but what I do have a feel for is what is happening in the boots-on-the-ground situation for the Washington real estate market, and I have yet to feel it slow. Last year 27% of home buyers purchased with cash. We still are seeing multiple offers, nonrefundable earnest money, and sale prices far above asking price. But all of this is happening in a climate of deflated buyer confidence and dwindling inventory.
Perseverance Pays Off
Contrary to what it seems, I don’t say these things to discourage anyone from buying or selling. In fact, quite the opposite. Those who persevere in these times often find themselves on the other side of bumpy times in a far better position than expected. The peak median Washington home sale price before the crash of 2008 was in June of 2007 at $309,600 and the median Washington home sale price today is $592,100. The people who were able to stay the course now have realized almost double the value in their homes, all the while having somewhere to live and laugh and love. It may have taken some grit and determination along the way, but those are things rural folks are never short on.
Special thanks to Shannon Palmer of Caliber Home Loans for always keeping us in the know.
See this article in the May/June 2022 online edition:
Allison Trimble is a Realtor® specializing in equestrian properties, farm and ranch properties, and residential real estate. As a former horse trainer, and a current owner, breeder and non-pro competitor in cow horse and reining events, she combines her experience in the horse industry with her lifelong real estate expertise to guide her clients through the real estate process.
Learn more at www.coastalrealtywa.com
Wait. In this article, you said, “Last year 27% of home buyers purchased with cash.”
Who are these people, buying houses with cash? Most regular folks have a 20% down payment and a 30-year mortgage. So who are the people paying cash for these enormously expensive houses?
Used to be, you could buy a little fixer-upper, and that was your starter house. You fixed it up, made it nice, and either kept it for a rental (using it as collateral to fund your next house) or sold it to upgrade to the house you really wanted. That’s when you start a family. It’s the American dream. Cute little house, white picket fence, kids. We are turning into a nation of renters – not owners. That feels wrong to me.