Why are home prices so high? Supply. Why is housing affordability at record lows? Supply.
This “risk” comes from the fact that homes are sold as an open market product and are heavily impacted by global and national economic trends as well as local supply and demand economics. The value of your home can, and will, change over time, and that can seem scary. Compound that with the goal of every buyer to “get the best deal” and you can create analysis paralysis. Hindsight is 20/20 and while you may have wished you bought a home five or 10 years ago, the purpose of this article is to look forward and highlight the housing opportunity in the next four to five months, because after that, everything could change.
Supply, Supply, Supply
Why are home prices so high? Supply. Why is housing affordability at record lows? Supply. Why are you having trouble finding the perfect home? Supply. Sure, interest rates haven’t helped, but as we’re now seeing, those come down. We understand that those are temporary, and debt can be refinanced.
Current Federal Reserve Chairman Jerome Powell recently made a similar statement in that the real issue behind housing prices is supply and they, the Fed, cannot fix that. For illustration, where that sits in Flagstaff, the absorption rate chart, courtesy of Northern Arizona Association of Realtors, shows that we actually hit some of the highest months of inventory this last summer than we’ve seen in years. Keep in mind – rate of absorption reflects how many months, based on current market pace, that it would take to sell out of available inventory. This is then a great measure of seller vs. buyer market temperature as experts explain that five-to-six months of supply is an equal buyer/seller market, above six is more buyer market and below four is more seller market.
Considering where home prices have surged, considering the 25-year mortgage rate highs and considering the global inflation crisis we’re crawling out of, we have not seen a solid buyer’s market here in Northern Arizona. The supply hasn’t flooded the market and the demand has remained paced to market. As a reminder, we hit 13 months of inventory during the bubble burst in 2006-2008 and as you can see, we’re nowhere near bubble levels.
Don’t Blink During the Fall and Winter
Costs for homes have effectively gone down in a massive way in the last 60 days, but the market hasn’t fully taken note yet. Per Chart 3, you can see that despite being at 24 month lows with current rates, mortgage applications haven’t reacted. On a $500,000 loan amount, the average client is saving between $500 and 600 a month than if they had purchased 12 months ago.
This shouldn’t be surprising as economic concerns, the political cycle and the typical seasonal slowing of real estate all play into there being a lower demand at this time. You can’t afford to blink though – though we are at 30-year lows for the amount of home sales nationally, there are 70 million more people nationally and as we head to economic slowing from this high inflation, that means the buyers sitting on the side lines will eventually come off. If estimates have any level of accuracy, there are about five million more people nationally who can purchase for every 1% dip in interest rates, which means folks buying now versus those in July already have five million potential competitors that they didn’t have before. Do we see another half or full percent dip by the spring market and does that add another 2.5-5 million buyers? Possibly.
Closing Thoughts and My Favorite Chart
My wife has the stronger emotional maturity between the two of us and I’d say I have the stronger logical maturity. We’re a good balance that way. I know this column may come off strongly on the logical path and that it can seem like some harsh perspective to those emotionally struggling with how drastic our markets have changed. I am emphatic about the sheer reality of how drastic affordability has shifted.
Markets create haves and have-nots indiscriminately, and that’s a conversation for another day. But, with statistics like those in Chart 4, it would appear that there’s a very low historic likelihood of prices reducing. Therefore, my encouragement to any folks accessing their housing goals is to seriously consider the opportunity during the next five to six months of market shift – seek experts, evaluate with logic and clarity – this just might be the best few months ahead before things get a bit hot in 2025. FBN
By Chris Hallows
For additional information or to schedule an appointment visit ChrisHallows.Benchmark.us or call 928-707-8572. The Flagstaff location is 824 W Rte 66 Suite A-3.
Chris Hallows is the Branch Manager & Sr. Mortgage Advisor of Benchmark Mortgage Flagstaff.
NMLS 306345 Ark-La-Tex Financial Services, LLC NMLS 2143 |Equal Housing Lender
Leave a Reply