End of 2022 Market Update
As 2022 comes to an end, so does this historical time in real estate. As the market shifts, it’s important to talk about where we have been, where the market is headed, and what that looks like for you. There is a good chance you’ve seen something come across your TV, phone, or computer screen that can make you feel a little nervous about what is to come. Let’s break it down into facts and see what it actually means for you.
Where we have been
Even if you were not interested in buying or selling real estate over the past few years, you might have seen segments on the news, read an article, laughed at jokes on the internet, or screamed in frustration over the real estate market. To sum it all up, the market was crazy! We were in an incredibly heavy seller’s market which meant sellers had a lot of power. Sellers were receiving 10, 20, 30+ offers on their house. Buyers were offering tens of thousands of dollars above asking price, waiving inspections, waiving appraisals or offering to pay if the appraised value came in low just to have a chance at getting their offer accepted. You also battled against more cash offers than ever before. One of our sellers even received an offer with a free trip to Las Vegas. Like we said… crazy!
You might be wondering how we got that point. There are a couple of factors. One is low interest rates. Interest rates were lower than ever before which means you are paying less interest on your loan. A 3% interest rate vs a 5% interest rate can mean the difference of several hundred dollars a month added to your mortgage payment. Another factor is low inventory. This means that there were more people buying and less people selling. Buyers had to offer more for a house in order to win over other buyers.
Where are we now
Simply put, the market has shifted. This is typical of the real estate market to shift back and forth between a buyers market and a sellers market. Think of the market like a balancing scale. Something changes in the economy (e.i. Interest rates dropping) which will shift the weight to one side of the scale.
Today, interest rates have gone up which, along with other factors, has caused a shift on the scale. Due the interest rates increase, this could have lowered the amount buyers could afford or disqualified them all together which creates less buyers on the market. What this means is that buyers now have more negotiating power when purchasing a home as well as more houses to choose from.
Let’s be clear, we did not jump to the complete opposite and into a heavily weighted buyer’s market. When a market shifts, it takes time (months) to go from one side to the other on the scale. What you can expect in our current market, is what most would consider “normal.” You may be the only one offering on the house or you may be competing with another buyer. However, chances are if you are competing you are against only a handful of buyers instead of 15+. You also have more room for negotiations whether that be in your initial offer, during an inspection period, appraisal, etc. You should always consult with your real estate professional as each house will differ when it comes to negotiations.
Where we are going
Here we are. Let’s address the elephant in the room. What about the recession? Are we about to have a repeat of 2008/2009? Should I panic? The concern about a recession is a true and genuine concern especially if you remember or struggled during the previous one. We will never disregard the fact that those years were hard on many people. While we cannot speak for the economy as a whole, let's talk about real estate and why things are different this time. We’ve heard a lot of terms recently like “housing crash” and “housing bubble popping” as well as rumors about repeating 2008 after the recent spike in home values. Prices may come down, but the likelihood of another “bubble popping” is not supported by the data. What’s the difference?
In 2008, the recession was caused by the housing bubble that we created. Banks were not qualifying people properly and there was too much supply, not enough demand which is measured by how many homes are being built. What this means is that people who could not afford to buy a home, were still being approved to purchase a home. Banks were loaning people money that they could not afford to pay back that ultimately ended with foreclosures.
Today, more people could afford to purchase homes because of the low interest rates, not because of bad loans. Mortgage lenders and banks were still approving buyers based on their credit scores, debt-to-income ratios, and other qualifications. Whereas before, your credit score, income, etc. were not taken into consideration as much.
(Graph provided by Barry Habib, Founder & CEO of MBS Highway)
Let’s be honest here. The concept of a recession can be unnerving and it being thrown in front of our faces constantly through the media does not help. Let’s look at the facts above. With the exception of 2008 & 2009, the housing market stays strong through recessions. Why was 2008 & 2009 different? Because it was the housing bubble “popping” that caused the recession. Today, there are others factors outside of real estate pushing us towards a recession. You also had too much supply and not enough demand which is the complete opposite of where we have been these past years. We had too many buyers and not enough houses for them to buy. Not enough people were selling homes and builders couldn't build fast enough as many were struggling with supply chain issues caused by Covid.
A recession can also be a time where purchasing real estate is a good financial investment. Depending on your financial situation as well as your stage of life, this may be prime opportunity for you to purchase your first home, invest in a rental for the first time, or grow your current portfolio. History shows us that real estate will continue to appreciate which means the value and your investment will grow continue to grow.
As #9 on Realtor.com's Top 10 Housing Markets for 2023, the real estate market in the Chattanooga and North Georgia area will definitely be busy in the new year! We are excited to head into 2023 and know that it will be a year of continued growth in real estate!
If you still have questions about the real estate market in the coming year, fill out the form below! We would love to answer your questions and chat with you about how we can help you in 2023.
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