March 2022 Market Update

By D. Michael Burke

The real estate market has been operating at a fever pitch over the past three years, with home values, home prices, sales volume, and transaction sides easily breezing past previous records. Despite securing consecutive banner years, many industry members have been anxiously awaiting another housing crash (similar to what happened in 2008) to pull the rug underneath them.

Over the past 54 years, long-term U.S. annual home price appreciation has remained around 4 percent, with a few exceptions where economic factors (e.g. the Great Recession) caused values to deviate from the trend line. Also, of note, is that we’ve been well above the 4-percent trend line since 2012, as supply and demand imbalances have helped push home prices to the upper limits.

Over the past three years, annual home price appreciation has reached 17 percent, and it’s important to remember real estate markets operate in cycles, which means that a downtrend is likely on the horizon.

It likely won’t be the same as the Great Recession, where the housing bubble burst after years of overbuilding and subprime lending that enabled unqualified buyers to purchase homes they couldn’t truly afford. Instead, some experts

believe that buyers will simply pull out of the market, which will eventually cool home prices.

“At some point homes become unaffordable,” said Keller Williams executive Jay Papasan. “Either we do what happened last time and start jiggering with the way we finance [homes] —and that didn’t turn out well — or it naturally cools off because buyers just say, ‘I won’t pay that price.’”

A large portion of the housing conundrum stems from a worsening inventory shortage, with the average supply dropping from a historical average of 6.52 in the last ten years to a record low of 1.8 months in December 2021. The pandemic and the coinciding shift to remote work forced millions of Americans to rethink their home needs and enabled those with financial means to take advantage of the opportunity to move with a lower cost of borrowing, thanks to record-low mortgage rates.

Mortgage rates, however, began their steady ascent in the third and fourth quarters of 2021, bringing them out of the rock-bottom 2 percent range they’d been stuck in since the early days of the pandemic. As rates track toward 4 percent, homebuyers have become increasingly worried about what it means for their bottom lines.

The government’s handling of inflation and the impending crisis in Ukraine are two crucial issues that will either tip mortgage rates down near COVID lows or back up toward the historical average of six percent.

Suffice to say, if you’re thinking about selling your home but you’ve been wary about taking the plunge, now is the time to do it. Why? Because it’s always best to sell before the market comes off the top of the bell curve.

Our experienced team of professionals is here to help you achieve your residential real estate goals. Whether buying or selling, our tools are PROVEN to help you get the most from your transaction!

Let’s chat! Just give us a call at 239-498-7600. We look forward to hearing from you!