Hamilton Herald Masthead


Front Page - Friday, August 12, 2022

Bubble? No, this is more of a market ‘shift’

If you follow real estate, you know inflation has led to increased mortgage rates, which has also contributed to the recent cooling of the residential market. There are a lot of moving parts, and it’s becoming more difficult to predict where the market is heading.

I always say consult an expert, whether it’s a Realtor, physician or mechanic. I look to two leading authorities when it comes to market trends in real estate: Lawrence Yun, Ph.D., chief economist for the National Association of Realtors, and Jessica Lautz, Ph.D., NAR’s vice president of demographics and behavioral insight.

“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” Yun says. “There are indications that mortgage rates might [have topped or come] close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”

What does this mean for home sales – at least in the short term?

“Home sales will be down by 13% in 2022, according to our latest projection,” Yun added. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023.”

So, home sales are having an inverse relationship with the rising mortgage rates. But does this mean we’re experiencing a housing bubble? In a report for the National Housing Conference, researchers David Dworkin and Bill McBride explain the difference in today’s market and the market of 2008.

“During the housing bubble, toxic mortgages with teaser rates – usually around 1% – made houses seem more affordable. But when teaser rates reset to market levels, many of these mortgages failed because homeowners could not afford the actual cost of the mortgage. Today, soaring housing costs are driven by the compounding impact of apparent underproduction between 2008 and 2020, housing supply chain failures since 2020 and increased demand since 2020.”

So, according to experts, we’re not about to experience another housing bubble, but we are facing something else that’s an obstacle to buyers: housing affordability.

In fact, excluding the housing bubble of 2004-2008, we’re suffering from the worst affordability since 1989, Dworkin and McBride say. NAR reports buying a home this past June was about 80% more expensive than in June 2019.

Nearly a quarter of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home.

What are some trends in the houses buyers have purchased? Lautz offers five “touch points” for Realtors to reach out to clients in the current climate:

n Twelve percent of buyers are purchasing homes virtually – and they want a Realtor to assist with the process.

n Remote work continues to influence buying trends: 34% of buyers want features that enable them to work from home.

n Consumers continue to have a skewed view of the typical amount required for a down payment. Thirty-five percent believe a down payment of 16% to 20% is required; 10% believe they need a down payment of more than 20%. However, the typical down payment for a first-time buyer is 6-7%. For a repeat buyer, it’s 17%.

n There is value in promoting energy efficiency in listings. Forty-four percent of Realtors say it’s “somewhat valuable,” while 19% say it’s “very valuable.”

n Seven in 10 buyers report a desire for the latest in heating and cooling, windows and doors, insulation, lighting and appliances. However, most of the homes buyers are purchasing are 29 years old and unlikely to have the newest features. This disconnect presents an opportunity for Realtors to contact previous clients about satisfaction with their current home and any improvements they have made.

The insight these experts provide is not only interesting but also crucial to getting the full picture of the real estate market.

For more insight, Dr. Jessica Lautz will be the featured speaker at the annual Economic Outlook Luncheon, which Greater Chattanooga Realtors will host in partnership with the Homebuilders Association of Greater Chattanooga Aug. 17. Register to attend at gcar.net/events.

So, consult experts, acquire the data and be prepared. An important step to take in this process is consulting a Realtor to help walk you through the homebuying or selling process.

Realtors work for their clients and communities every day. That’s Who We R.

Founded in 1912, Greater Chattanooga Realtors is a regional organization with more than 2,500 members servicing Hamilton and Sequatchie counties in southeast Tennessee and Catoosa, Dade and Walker counties in northwest Georgia. The association is one of approximately 1,100 local associations and boards of Realtors nationwide that comprise the National Association of Realtors. Greater Chattanooga Realtors owns and operates a multiple listing service that’s one of approximately 600 MLSs in the country and services more than 2,700 users.