2022 Real Estate Downturn Has Started

Leading indicators for real home appreciation suggest that the real estate market is going to take a large downturn.

Having been in the Real Estate industry for over 30 years, here is my 2 cents… The Housing market has been out of touch with reality for one reason, the cheap cost of money.

2022 Real Estate Downturn Has Started

A homebuyer does not look at a prospective home and say yep that home is worth 500,000. Instead, they say that home is going to cost me 2,500 per month and compare it to other homes in the same price range… As the cost of borrowing increases due to higher rates, that same homebuyer continues to look for the same payment. 1 of 2 things happen at this point….1. The homebuyer removes themselves from the prospective homebuyer category or 2. The Homebuyer lowers their expectations on what level of home they are willing to accept. Eventually, the home sellers begin to reduce prices to accommodate the Homebuyers payment requirement.

You must also keep in mind the other related pressures that will begin to affect a persons individual finances. When the Fed raises interest rates it immediately impacts personal debt including auto loans and Credit cards. This in turn affects the consumers ability to even afford the $2,500 mortgage payment they originally earmarked. In addition a very unsettling precedent was set in the 2005-2008 crash, banks began to reduce limits on credit cards even if the person was making all the payments on time and as a consequence credit scores began to drop adding further pressure to potential homebuyers.

Putting it all together: The snowball begins slowly….. No matter what else is going on in the world, Politically or Economically, Life goes on….People get Married, have Children, Get sick, loose jobs, get Divorced, Die etc. Financial delinquency’s for Mortgage loans and other personal debt remain low due to having equity in a home and using it for a piggy bank as needed. If you removed this safety net from the equation the delinquency numbers would be elevated significantly. Unfortunately, many people who purchased a home or refinanced at these elevated values will see their equity all but disappear. This is important to understand because it is the tip of the spear so to speak.

When people are faced with one of life’s negative events and carry a heavy debt burden, the only way out is to eliminate the debt and the bankruptcy commercials will once again reign. As people begin walking away from their homes and foreclosures start to present themselves in neighborhoods, further downward pressures on home values will ensue and if it’s bad enough, can trap people into becoming upside down on the homes value even if they purchased at a much lower price point.

I have never heard any financial guru/economist other than ‘Dr. Doom’ Roubini accurately call the size and speed of the snowball before it gets halfway down the hill. So, with that, take my input with a grain of salt and conduct research for yourself….. PS. One of the little known reasons for the shortage of single family homes was not that builders were not able to keep up with demand. In reality, many studies were conducted focusing on Millennials and Gen Z as they pertain to housing, mainly conducted by hedge funds, showed that both groups, but especially Gen Z, would become life long renters and the big money began to flow to multifamily housing. I guess they were wrong.

Homeowners should understand, that just because you don’t have to sell at any time in the near future, you’re going to escape this downturn. Just like many didn’t sell their homes as prices escalated, yet their homes became worth more because of demand. In today’s market, the same is true,  now lower sold prices turn into depreciation for existing homes.

Always keep in mind, that purchasing or selling a home is a major lifestyle decision, and as such, should not be rushed into. So, by all means, if you’re considering purchasing or selling real estate in today’s market, do your own homework and draw your own conclusions! But, also consult with your legal & financial advisors prior to making your moves.

My opinions here are just that, opinions!  The fact that I’ve been in the residential real estate market for over three decades, does not mean that my opinions are going to be any more accurate then your mother-in-law’s opinion, though I sure hope they are!

2022 Real Estate Downturn Has Started

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