What to Expect from the Real Estate Market

Hello Hampton Roads,

While no one has a crystal ball to predict the future, the present has clues to help us make educated guesses about what's coming our way!  Looking at the news today, the Case Shiller Index for housing found that in April home prices rose 20.4% from last year, but is slightly down from last month.  Locally in Hampon Roads (the seven cities), the May 2022 statistics show that home prices are up 11.1% from last year for both attached and detached and homes are still selling for over the asking price. 

This is good news for home sellers and reaffirms the seller's market, but these stats are lagging indicators.  They don't take into account the Fed's war on inflation and the recent 75-basis-point increase in the federal funds rate and the very real possibility of more rate hikes in the next few months. In short, we don't just want to look at where the market is, but we want to see based on current actions where it could be headed. 

Let me explain (for those of you that would rather watch a short video, check it out on my Youtube channel):

The Fed's goals are two-fold:  to keep prices stable so inflation isn't too hot or too cold, and to keep employment rate high.  Because inflation has been running really hot, the employment mandate has taken a back seat.  The Consumer Price Index (CPI) is a measure of inflation and in May the inflation rate was 8.6%--too high for the Fed's taste as they want to keep it around 2%.  In order to temper inflation, the Fed has been increasing the federal funds rate, which makes all borrowing expensive, including credit cards, car loans, and mortgages.  The biggest component of the CPI is real estate--it makes up about 42% so the fastest way to bring inflation down is to bring real estate prices down. 

(Sorry, I couldn't resist the meme!)

Increasing mortgage rates puts pressure on buyers, some of whom may be priced out of the market, which means less competition for homes and downward pressure on prices.  In short, I believe there will be a buying opportunity in the future.  How low prices will go depends on how long and how much the Fed decides to raise rates moving from quantitative tightenting (QT) back to quantitative easing (QE).

But, rising home prices is a double edged sword--if you're a home owner/seller you've seen your equity explode with higher and higher prices, but if you're a home buyer, it's been challenging to say the least. But markets always change!  They say that the cure for high prices is high prices--this certainly seems to be case right now!

Thanks for Reading,

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