So over the last couple of years, despite the pandemic, despite the mortgage forbearance, the eviction moratorium, inflation, war, supply chain interruptions and name your poison, I have still been really bullish on real estate as an investment asset class. And I’ve always sort of suggested that if you’re waiting for a crash, these are conversations I have with friends every day, you’re going to be disappointed and you’re gonna be waiting a long time. But as I mentioned before, there’s one silver bullet that can bring the entire housing party to an end and ruin it. Like Mom and dad coming home early from vacation. It’s finally arrive and it’s taking its toll. So in this video, I’m going to tell you exactly what it is, how it can impact you and what you can do about it.
I’m Jonathan Beasley of that Fit team. We’re a real estate sales team right here in Hampton Roads. But more importantly, I have a personal passion in showing people how to invest in real estate so that over time they can escape the matrix of their soul sucking nine to five and create a life built more out of their own intention. So that’s the reason I make all these videos. So if you ever get something out of these, please smash the subscribe button and hit the bell notification, too, so that I know this video helps you out in some way because that is my goal, is to serve you with real estate knowledge. So, all right, let’s get into it.
Can We Expect a Recession?
The only thing that can stop this housing market from skyrocketing appreciation that we’ve seen over the past couple of years is monetary policy and or interest rates. So as of right now, they’re both in full effect and applying direct pressure to the market. We see this on a daily basis as we interact with clients and loan processing and buyers and sellers in the real estate market. Money printing is tightening, thank God. And mortgage rates are rapidly rising. And together they’re cooling off the housing market pretty significantly for the third straight month. In fact, nationally speaking, the market is seeing its weakest pace in nearly two years. So last month, real estate sales fell 5.9% year over year. And this month’s report shows a 2.4% slip of existing home sales compared to last month.
The most recent data is suggesting the slowdown is going to be extending into June and into July. So mortgage applications this week slid 15% from a year ago, and only 19% of consumers surveyed in May said it was a good time in their mind to buy a home. So that tells you something about buyer sentiment as a whole. That’s down 47% year over year from last year. And it’s a record low going back to like 2010. The market is seeing a lot of first time homebuyers bail on the home buying process and they’re the ones getting hit the hardest with this. They’re tired of shopping. They’re tired of losing contracts to multiple offers. And with rising interest rates it’s only getting more difficult.
And so the frenzy market that we’ve seen take off in the last couple of years is losing a little bit of steam. But here’s the million dollar question. Is it crashing? Is there a bubble? Well, home sales are definitely down and the number of homes for sale is fairly low for this time of year because normally spring and into summer is when you see the most action between buyers and sellers. But most homes are still receiving multiple offers and selling quickly. So that’s the important thing to note at the current pace of sales here in Hampton Roads, we have less than a two month supply of homes on the market. So what does that mean? It means that while home sales are slowing, sales price growth is not. So prices are still rising.
Why are House Prices Rising?
Prices still rose about 10% this month compared to this same time last year. So despite what you hear about the slow down and historically speaking, the housing market really is still hot, buyers who have been shopping for homes have lost out on multiple offers to the buyers who offered to pay more or were willing to skip a home inspection or waive appraisals or remove loan contingencies. So there is still so much buyer activity that prices continue to rise. Another component for this is that the market is flush with cash buyers. I’ve never seen more cash buyers in all of my career in real estate, more than we’ve ever seen about 26% of existing home sales this month were purchased in cash, which is a crazy number, and that number is significantly increase as compared to a year ago.
Also the average days on market is still only 17 days. So with rates rising the way they are, buyers are dropping out of the market and housing prices are still on the rise. So that’s the market dynamic. Look no further than the basic economic law of supply and demand. I beat it like a dead horse, but it’s just so true. The supply of existing homes for sale is still scarce and builders are struggling to bring new inventory online anywhere near at the pace of consumption. They’ve been slowed by supply chain challenges and rising supply costs, labor shortages and increased interest rates on their end as well. The closest thing that we have to a crystal ball as far as new inventory is concerned is the residential permit numbers, and they can be a very good indicator for future new home construction.
They fell 3.2% last month, so we just can’t get new inventory online fast enough. Supply is ultra low and demand is still very strong. So how could it still be this high? Very simply, many buyers are getting priced out of the market, particularly first time home buyers.
And you would expect that to reduce the demand. But they’re not all getting priced out of the market more first time home buyers than anyone else. For example, instead of a home receiving ten offers, it might now receive six or seven offers. The fact is we’ve got more people than we’ve got houses and we are not in a housing bubble. I don’t see a crash coming. We are in a people bubble. So what are all these people doing that are leaving the market? Where are they going?
What are the other Options?
The answer is wherever they can find a place to stay. Whether that’s staying at home with mom and dad, multi generational families or finding a rental, the answer is they’re going wherever they can. And in the case of the rental market in that regard, as Gandalf says, they may be hopping out of the frying pan and into the fire. Rents nationwide on average are rising faster than home prices. So think about that impact on the people that are leaving the home buying market. To go into a rental. Some studies are showing rent prices are increasing at a rate four times faster than income, which is freaking scary. So rent demand goes up, rent prices keep climbing, rental prices continue to soar in April and in May.
And rent prices in college towns across the country are skyrocketing, which I would consider most of Hampton Roads College heavy areas. So in terms of real estate investing as an asset class, as an investment asset class, if you’ve got the means to be and the desire to be in real estate, everything suggests that in times of runaway inflation, real estate is still one of the safest places you can be, both as an owner occupant moving into a home that you own, as well as a landlord, a non owner, occupied real estate investment values are climbing and rents are continuing to push higher. So with all that said, I still stand by my original prediction. If you’re waiting for a housing market to crash, you are going to be waiting a long time. In my opinion, the supply and demand fundamentals are too strong. There is way more demand than there is supply. Now, keep your eye on the Fed. There is always the caveat.
Keep your eye on the Fed and the monetary policy and the interest rates because those no doubt will affect the market from a macro perspective. It hasn’t happened enough yet to slow sales activity, and it’s not had enough of an impact to push prices downward yet. We’ve barely even seen them slow down. So I hope you found this interesting. Let me know what you find the most impactful below, and who else do you know that might need to see this? If they’re thinking about getting to the market, connect them with us. We would love to help them too. Until then, please share this like it. Subscribe. I’m Jonathan Beasley signing off.
