Record Breaking Highs, New Lows in Real Estate

This week sees duel record breaking highs in Real Estate and depending on your perspective, this might be very concerning. We knew it was trending this way, yet it’s pretty amazing to note these milestones and consider their impact going forward.

Mortgage Interest Rates Raise
Today, Policymakers start a two-day meeting where they are widely expected to raise interest rates (read: mortgage rates) by half a percentage point — the largest rate hike in more than two decades. It’s a move aimed at slowing down inflation, and it may have that effect on some aspects of the economy – but the real problem may be that the dollar is just devalued. Either way, prices had surged 6.6% during the 12 months ending in March. This is more than three times the Fed’s target rate for inflation and the sharpest increase in prices since 1982. (FWIW I was much more into my BMX than the inflation index at that time).

Median Home Price Record High
This week marked yet another record high for the median home price in the US at $425,000. This represents an increase of $100k since immediately prior to the pandemic. (26 months) Unofficially, the last two years appear to be the largest increase in home prices in decades or a generation. It’s more and more a case of the haves and the have nots.
For those of us who own homes, high rates and high prices do not have a huge impact.  In fact, for my neighbors, they are giddy each time a listing in our neighborhood goes online – for them it’s kinda impressive to see thier “wealth” build.  However, we are gen X, (Remember us? Grunge, Nintendo and AOL? That’s us.) For the largest generation (millennials) who own the lowest percentage of homes – this is a very big deal with huge ramifications.  It was already difficult, but in two years, affordability is out the window, and it seems more and more like they are the going to be renting the American dream.  This is a new low for people, and a troubling sign for the people of this generation who hope to get out of debt or grow generational wealth.  But also, for those who earn money selling single family housing – this is a red flag.

Predicting the Future
The raise in rate will officially double the cost of a loan from one year ago, as we trend to 6% interest rates on conforming 30 year home loans. So, this will surly slow demand for housing, and increase supply, slowing down the house price escalation, right? Not so says Altos Research CEO Mike Simonson. “Most buyers buy based on life events…  Rising rates don’t lead to a crater of demand or a flood of inventory. Rates don’t change those peoples life events.” Mike thinks demand will continue to outpace supply even with higher prices and higher interest rates. He predicts a slight increase in supply by the end of the summer – as is typical for housing seasonality. (Here’s this week’s Altos Report)

The housing industry needs a solution for first time home buyers that does not flood the market with cash, raising prices and effectively pricing out those in the on deck circle.  Recent cash-oriented solutions have had a terrible long term impact.  NAR needs to make finding a solution for first time homebuyers a priority. On the industry relations podcast with Greg and Rob, they suggest this starts with bringing in younger leadership to NAR committees – dropping the avg age of members by more than 20 years. The current leadership is not focused on this threat to our industry – and younger leaders get the severity of the situation.

So I’ll ask you what your clients ask you.  With more SFR (single family residential) transactions than ever (6.2M) last year, house prices skyrocketing and interest rates doubling – how do we help first time home owners without driving up cost?