For those that have been sitting on the sidelines, watching what’s happening in the market. Are you thinking to yourself “gosh I should have bought a house last year or a few years ago!” Remember, hindsight is 20-20 and you can’t regress you can only go forward. So, when are housing prices going to return to “normal”? We need to be clear about what the new normal is and what that looks like for buying a house. Here are things you should consider as it relates to when housing prices are going to return to normal.
One of the fundamental things that drive the housing market is jobs. People feel optimistic when they have security at home and part of that security at home is having income. An excellent job and a stable foundation are two paramount things for most families who buy homes. In other words, you don’t buy a home if you’re feeling shaky about your job or your income, right? After all, buying a home is a very permanent thing. This goes hand in hand with unemployment. The more people who are working, the more job growth. The more jobs that are created, the more housing prices will continue to rise over the course of time which statistically supports about a 1% annual appreciation rate. Doesn’t always work out this way but that’s generally the consensus. If you look at the last 12 months dating back into 2021-2020 with the pandemic housing prices shot up because of more people can work from home and new job opportunities were created. While families had problems associated with COVID, others had exuberant growth which supported strong housing in the last two years.
Now we’re in 2022 and real estate prices are still reeling in the effects of the pandemic. For housing prices to come down two things must occur. Number one more supply. To get more supply of homes available on the market there needs to be a driver or a catalyst. The only driver and catalyst of supply is unemployment. When the unemployment rate begins to grow and more people off from their jobs rises costs. Which is happening right now because of inflation. That could signal more homes available for sale on the market which increases supply. Creating less demand for housing since there are less people working to afford it. If you multiply that a million times across the United States, the math always holds. The law of demand is the same in real estate as it is in the economy. It’s reasonable to think housing might level off and not grow at the rate at which it has in the last 24 months. But housing prices to come down must have supply. Without supply a slowdown or a reduction in real estate prices nationally might happen but it’s extremely unlikely.
So, what does this mean for homebuyers going forward as it relates to a budget and spending? It boils back to the golden rule. Making sure you have the economic means via cash, credit, and income to support a housing payment. For families who have a strong job and/or a strong financial foundation, they’re feeling good about their income and finances. Those people are going to do exponentially well as 80% of people who buy homes do if they have a long term buy and hold strategy in place.
The opportunity to buy a home after refinance that home lowers the interest rate, and/or get rid of PMI and get cash out, pay debt, or do home improvement projects. The fundamental element that is a huge driver of desire of buying a home for families in America is that real estate is the second driver of wealth in America today and has been for the last 40 years. Owning a home and having a retirement account that you contribute to will absolutely make you wealthier over the course of time. If you’re thinking about buying a home and want to learn or understand the pros and cons on how a mortgage payment could be woven into your payment cash flow goals start today with a no-cost loan quote today!
