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It's Happening?


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It's Happening?
Written By: Linda Nelson / Leonard Steinberg ~ 6/1/2023


With so much uncertainty around the economy, is it a good time to buy or sell a home? I want to share an enlightening article that one of my highly respected colleagues, Leonard Steinberg, published in his daily newsletter to the national Compass agent community.

It's Happening?
Many months ago I predicted that the combination of super-tight inventory, combined with a massive surge in activity after pent-up demand broke free in 2020/22, combined with an under-built environment of millions of homes in the US, could lead to further price escalation, regardless of higher rates.

A few days ago The S&P CoreLogic Case-Shiller National Home Price Index, climbed 0.4% in March compared with February on a seasonally adjusted basis. On a year-over-year basis, the index rose 0.7% in March, down from a 2.1% annual rate in February, the smallest annual increase since May 2012. The 10-city index fell 0.8% over the year ended in March, following a 0.5% increase in February. The 20-city index dropped 1.1%, after an annual gain of 0.4% in February. For both indexes, it was the first annual decline since May 2012. Miami had the fastest annual home-price growth in the country, at 7.7%, followed by Tampa, at 4.8%. The weakest market was Seattle, where prices fell 12.4% on an annual basis. A separate measure of home-price growth by the Federal Housing Finance Agency also found a 3.6% increase in home prices in March from a year earlier.

The Case-Shiller index measures repeat-sales data on a 2-month delay and reflects a 3-month moving average. Homes usually go under contract a month or two before they close, so the March data is based on purchase decisions made early this year or late 2022.

Bottom line: the price re-balancing in many parts of the US seems to be slowing. And we may be entering a period where the limited inventory that is available sells for...more. And this is during uncertain, more challenged economic times with higher interest rates. Now imagine what happens when:

  1. The economy weakens and rates are dropped to fuel activity.

  2. We are under-building and continue to build less of the types of homes the consumer is seeking. By millions.

  3. Building labor and materials costs have slowed rising but have not dropped sharply, so building remains expensive.

  4. We are in the midst of a $1 trillion government funded infrastructure spending time that keeps labor and materials supplies tight.

  5. Many new projects cannot find funding right now. Restarting and completing those can take years, not months.

  6. Weather related repairs and rebuilding combined with aging housing stock (on average 37 years) demand construction that does not deliver new supply.

  7. Even more people who have been renting to save to buy enter the markets combined with the existing Millennial demand. Add in the 10,000 per day retirees seeking a second home or a smaller more affordable home the younger market also wants....

Under-supply combined with rising demand = price hikes! It's the simplest theory of economics 101. Buying now with higher interest rates - and refinancing later when rates come down a bit - may be cheaper......

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