Housing Market Predictions: When Will It Be a Buyers’ Market Again?

Housing Market Predictions: When Will It Be a Buyers’ Market Again?

Roger Pettingell Sarasota Real Estate

Prior to Covid-19, few analysts would have dared to issue housing market predictions that called for double-digit annual increases. However, the unique dynamics associated with the pandemic – most notably near-zero interest rates – created an unprecedented buying frenzy. But now that the Federal Reserve is reversing course with hawkish monetary policy, many anticipate the return of a buyers’ market.

While present circumstances are not apocalyptic, brewing evidence exists regarding a possible pivot in residential real estate, thus necessitating updated housing market predictions. Primarily, the housing sector has begun adjusting to the surge in mortgage rates, leading to some previously hot regions suffering a cooling, with many deals failing to close.

Indeed, Axios reported that nearly 15% of pending home sales failed to close in June. Moreover, this “national rate is perhaps even more striking because overall pending home sales fell in June — so we’re looking at a bigger percentage of a smaller universe.”

Another factor that requires fresh predictions and the possible return of a buyers’ market is the pressure impacting homebuilders. Some companies are reporting “big drops in sales and foot traffic to homes, and an increase in cancellations.”

Not surprisingly, full-service brokerage firm Redfin (NASDAQ:RDFN) and homebuilding company KB Home (NYSE:KBH) are down 78% and 31% on a year-to-date basis, respectively. But what are the experts saying regarding new housing market predictions?

Inching Closer to a Buyers’ Market

Per the aforementioned Axios report, Taylor Marr, an economist at Redfin, mentioned that “Sharp rate increases didn’t just pump the brakes on the housing market, they drove it into a wall.” That said, Marr “expects the number of cancellations to come down as sellers adjust pricing to the new reality.”

A homebuilder in the formerly red-hot Phoenix market bemoaned, “Quite a dismal traffic and sales climate.” Later, the builder added that, “Cancellations are extremely high.”

In an interview with the Washington Post, Ali Wolf, chief economist at Zonda, remarked that signs of cooling down are everywhere, with significantly more inventory in certain regions.

“What we are seeing today is that buyers do, in fact, have a limit,” Wolf said. “Prospective home buyers have gotten to the place that they are either intentionally stepping out of the housing market as they wait and see what happens next or are forced out of the housing market given the higher costs of homeownership.”

Cooling the Jets on Hot Deals

Nevertheless, the real estate sector is one which features bullish and bearish opinions. To be fair, not every expert is onboard with housing market predictions that call for the imminent return of a buyers’ market.

In another interview with the Post, Brian Brackeen, who runs Lightship Capital in Cincinnati, remarked that he “noticed a shift in the attitudes of sellers, where many are stubbornly holding onto high asking prices even as the market is shifting out of their favor.”

“If you are a seller and you are so close to the gold rush, you don’t want to give that money up when your friends sold for top dollar, on the first day with multiple offers,” he said.

Further, other experts noted the oft-cited dynamic that demand for homes outstrips supply. While Danielle Hale, chief economist at Realtor.com, stated that the increased number of new homes is great news for buyers, “home prices are showing a lot of sticking power.”

Hale added that, “Price growth is going to slow, but I expect prices to stay high. If home sellers can’t get the price they want, they are likely to not put it on the market.”

Housing Market Predictions for Prospective Homebuyers

Given the above dynamics, homebuyers have two questions: Will the real estate sector ever normalize – or even decline significantly from its highs? And if so, when will this happen?

The first question is easier to answer. More than likely, the answer is a resounding “yes.” Based on the growth of real median household income from 1984 – the first year for which the U.S. Census Bureau kept records – compared to the expansion of median sales prices of homes sold during the same time frame, the result is quite Orwellian.

At the end of 2021, household income increased by 36.74% whereas home prices skyrocketed by 369.31%. The difference in magnitude between these two metrics is nearly a factor of 11 times. Such a disparity is likely unsustainable.

As for when a normalization will occur, that’s much more difficult to answer. In 2007, the ratio between home prices to income jumped to a then-record 3.93 times. Using the latest household income data, in 2021, this ratio climbed to a factor of 5.44. Again, this metric speaks to an unsustainable backdrop, implying perhaps by 2023 a slowdown may materialize. However, the market can stay irrational longer than you can stay solvent.

Still, bring in the economic woes such as inflation and the monetary policies designed to kill said inflation with higher borrowing costs, and housing market predictions calling for an eventual normalization are arguably very reasonable.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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