It’s depressing to know that the new generation is getting ready to take over the world, but they don’t have the necessary information to thrive. What in the world is happening with the housing market in mid-2022? If I could answer that here, there would be no need for a whole podcast. There are SO many things happening that it is tough to keep everything straight. I’ll review all the economic factors, reports, forecasts, theories, and data. You take the data and make your best choices. So, what are you waiting for? Dive into this episode as I give summer housing updates and discuss the five reasons the market is cooling and slowing down.
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Housing Update…Compared To Your Kardashians Knowledge
Summer 2022 Housing Update For First-Time Home Buyers
This is where you come to get all things on how to buy your first home. Right from the start, I realized from all the responses that I got, that lots of people were clamoring for this information. It turns out that I vastly underestimated the need for this information. I’m talking in a massive way. Our survey from Zillow showed that 90% of Americans know how many children Kim Kardashian has, but fewer than 33% know how to get pre-approved for a mortgage. Let’s talk about this.
What is up? There was a survey that came out, brought to you by our friends at Zillow that said that nearly 90% of the United States adults know that Kim Kardashians and Kanye West have four children. About 70% of United States adults knew about the reunification of Bennifer, but only 33% of adults know the benefits of getting a pre-approval for a mortgage. I want to start an episode with some of these depressing stats that came from the survey.
Instead of complaining about it or making fun of it, you misinformed Millennials and Gen Z people, because I don’t feel that, I’m going to get on the proactive side of this and do something novel. I’m going to help you since it is not your fault that no one told you about this stuff. First, some fun and then we’ll get into a market update. If you happen to be one of the people that answers the phone when someone calls and asks you this survey, please, you know the answer to these questions.
Fun time, here are some more of the not-so-greatest hits from what people know about housing surveys. The majority of the survey respondents believe that getting a pre-approval locked in your lower rates. This is absolutely not true. It’s the first step that you do to get pre-approval, but locking into them doesn’t mean that you lock into a lower rate.
It doesn’t even mean that you lock your rate. Each bank and each lender got different rules on how those locks work. I’m getting a lot of people that will reach out to me, ask me one quick question, and want the answer. We’ll talk more about the quick answer expectation epidemic that I’m seeing at the end of the show. This was another example of people going, “I do this. I get that. That’s all I have to do.”
[bctt tweet=”Ignorance is fine. It’s not your fault.” via=”no”]
Another one of the answers that were highly disturbing was that most adults thought that the PMI, also known as private mortgage insurance, applied to every single transaction. It only applies to transactions when you put less than 20% down. I spend most of my time on this show justifying and explaining that if you’re savvy, smart, and a financial baller, you can use PMI to utilize a low down payment and pay the PMI.
You’re going to save money because you’re only going to have that PMI temporarily. You can do that instead of trying to save up the whole 20% while your rent is going through the roof and the market is appreciating. Apparently, it turns out that not only did people not know that, but they didn’t even realize when you did not have PMI. That was a stoner.
There was one that homeowners also had a lot of on cryptocurrency, color me shocked, as well as the purpose of home appraisals and offering earnest money. Survey answers were low on that. The only factor that the respondents seem to have a good grasp of when it came to things dealing with home ownership was credit scoring with a majority understanding payment history is crucial to a good score. That’s great.
I also have this comment on that. People doing the survey, it blows my mind that they don’t think about where you guys are coming from. Adults who have been renting for a little while, but haven’t bought a house yet understand credit scores. Credit scores are the things they’ve already had to deal with in their years when they’ve been adulting. Whether you’re renting a home or buying a car, you’ve had to deal with credit.
The other stuff is brand new to them. Instead of spending all your time doing a survey to figure out what these people don’t know, how about spending some time putting out some content that makes sense to them so they can understand this? Come on. Help the people out. It’s funny. I did even see a flaw in the one thing that they said was good. Do you see what you remember what it said? It said the only factor respondents had a good grasp of was credit scoring, with the majority understanding that payment history is crucial to a good score.
To those longtime homeys out there, what do you see that’s wrong or incomplete with that sentence? Are you finding it? They said understanding that payment history is crucial to a good score. That’s only 1/5 of the equation. Payment history is very important. It’s one of the larger chunks of the credit pie. If you don’t know what I’m talking about, google, “How do they calculate my credit score?”
There are 7,000 pie charts. You should print one up and stick it on your wall. Payment history is 1, but the other 4 factors are credit history, inquiries, balance usage, and credit mix. You want to know how all that stuff works so you can do more than the average respondent does. Go back and read all the credit episodes. There are a billion of them on the show.
What do I like to do when I get depressing information about the generation getting ready to take over the world and they’re uninformed? First, I blame the man and the system for not educating you. I bring in my proactive response to help you have more knowledge about the biggest financial decision you were ever going to make in your life. Hopefully, you’re going to know more about this than the Kardashian babies, but not Star Wars. If you know more about Star Wars than buying your house, that is perfectly acceptable.
Here are some Summer 2022 market updates. This is stuff so that if you do answer the phone for the survey, you can be in the know. Since I spent that time ragging on those folks who didn’t know the things in the survey, how about I start with some good news to make you all feel better about yourself, for you who want to be first-time home buyers?
By the way, I’m not ragging it all. Ignorance is fine. It’s not your fault. Let me give you some good news to start with. We’ll get into all the facts and details. We’re starting to see headlines about a cooling market. As I said in the last episode, you’re also going to see a cooling market or bad-meaning or bad market. I almost went into it right away.
“That’s not bad meaning bad, but bad meaning good,” Run-DMC. “What?” Bad headlines are good for you? It’s like cooling headlines are good for you if you’re a first-time home buyer. It’s great news for those of you who maybe are at that point where you’re out there shopping for homes and you’re getting crushed. You’re reading this from the fetal position, crawled up on the floor, and you’re hoping that you can get some good news because it feels impossible out there with unaffordable homes and the competitiveness that makes it feel like you’re going into battle.
You’re having a damn hard time hearing me go on and on and on about my practical positivity. I’m here with some promising news. Sellers are making price cuts in some areas and the bidding wars are starting to ease up a little bit. This is all relative, but that’s a headline that has some truth behind it. If you keep searching as I do, you’re going to find other reports saying that it’s still stupid competitive out there even though the inventory’s rising. Who do you believe? When it comes to figuring out, I’ve got two masters, data and facts. Those are my gods when it comes to real estate. Let’s take a look at some of that.
[bctt tweet=”Cooling headlines are good for you if you’re a first-time home buyer.” via=”no”]
Here are some things to give you hope if you’re a first-time buyer. There are five signs the housing market is starting to slow down. There’s a shift happening in the housing market after more than 1 or 2 years of soaring demand. Exploding home prices in increasing real estate sales has all been going nuts. We’re starting to see that the market’s starting to cool off. Taylor Marr, the Chief Economist at Redfin said, “The housing market isn’t crashing, but experiencing a hangover as it comes down from an unsustainable high.”
Mortgage rates have increased more than 2.5 points. It’s up about three points now. Lots of buyers are either bowing out or recalculating their price points, their must-haves, and some of the things that they’re looking to buy because of these numbers with the new mortgages. Seriously, if you started doing your planning and thinking about it, you might have doubled the amount of interest that you’re paying three points from March 2022 to now. I’ve seen this firsthand all over the country. I have lots and unicorns reporting that as a result of these changes in the mortgage rates, there have been people bowing out, recalculating, or figuring something else out.
One of the things we’ve seen as a result of that is the year-over-year sales have been dropping. Keep in mind they have been dropping, but they were going up before that. Cooling and slowing down doesn’t mean a gigantic drop. It means going back to normal. In a Fannie Mae survey on home buyer sentiment, based on the crazy changes in the mortgage rates and the unaffordability of homes, 79% said it was a bad time to buy a home. They didn’t mean bad meaning good. They meant bad meaning bad.
Personally, I don’t agree with the sentiment of 79% of the would-be first-time home buyers. My reasons are based more on my masters, my gods, data, and facts. Most people who are answering the survey are answering based on emotions. All of my data and facts are in the recent episodes. If you’re brand new to the show, read this one and then start going backward. When other people out there get scared of these headlines and bow out, here’s the good news about that. That’s a less competitive market for you. That is a good thing even though the headlines all say it’s bad.
Inventory Of Homes For Sale Growth
Let’s get into it with more facts and data. While the market is still strong by historical standards, here are five reasons to believe the tide is turning. It’s cooling down. Things are slowing. Number one, the inventory of homes for sale is growing. How long have we been waiting for this? You’ve been hearing me talk about inventory so much on the show. You probably want to punch me in the face. Inventory has been lower than Drake’s song downloads. That is bad for you, for Drake, and probably Canada.
The inventory started moving in a recent direction. The week that we saw active activities, they’re up 13% from 2021. That’s pretty cool. Danielle Hale, the Chief Economist at realtor.com said, “Seeing the number of homes increases great news for buyers. It shifts the trend and they’re seeing more homes. It should help balance the market, slowing down the home price growth, and increasing the time on the market.” We’ll talk more about time in the market a little bit later. That’s a good stat for you.
Hale also said, “In addition to the high cost pushing prospective buyers out of the market, part of the reason there are more listings is that more homeowners are deciding to sell. More new listings enter the market in May than in any other month since June 2019.” Hale continued one more time. I’m going to keep quoting her because she did the article. “Price growth is going to slow, but I expect prices to stay high. If home sellers can’t get the price they want, they’re not likely to put it on the market.”
Price Cuts
Number 2 of the 5 reasons why the tide is turning is more price cuts. Don’t get crazy. This is not Black Friday or Amazon Prime Day. It’s a good sign. If you’ve been looking at homes, you might be noticing something that you haven’t seen in a long time. That’s a home listed at one price and reduced down to another. For a while, homes are selling so quickly. With bidding wars, the sellers would get way over the list price. Sometimes it’s way over list price.
As affordability changes and we’re squeezing out the buyers, there’s less competition to buy. Some sellers are deciding to lower their prices so they can get that competition. It doesn’t mean that you’re going to get a screaming deal all the time. A lot of the sellers who are reducing their prices were flexing originally and listed their homes way too high in the first place. They saw what the little homes are selling for and got greedy. In general, we can still look at this stat and see it’s a good time.
The actual data shows that price cuts were seen in 10.5% of homes in May, 1 in every 10. That’s a good deal. That is up from 6.2% back in May of 2021. That doesn’t mean that there’s a liquidation sale on houses. Danielle Hale said, “That’s great that the price reduction is higher, but it’s still lower than it has been since 2017.” It’s a less competitive year than 2021, which was nutso, but it’s still pretty competitive.
Only Focusing On Sellers
Number three for the tide turning, real estate companies are laying people off. This is a big and weird one. We’re still on pace to sell almost the same number of homes as we did in 2021.” Once again, this is another symptom of why the myopic real estate industry is only focusing on sellers. When the sellers aren’t banging things out at the top of the market, suddenly real estate companies start to get in trouble. It’s been a sick sellers’ market for the last few years.
The real estate company started adding people and getting all greedy and excited, trying to get when the getting was good. Now that we’re slowing down to normal, Redfin cut by 8%, Compass by 10% to 25%, depending on which report you believe, and Opendoor by 25%. It probably is a sign that sellers aren’t going to rule the world for another 12 to 18 months.
[bctt tweet=”Cooling and slowing down in the market doesn’t mean a gigantic drop. It just means going back to normal.” via=”no”]
Home Buyers Applying For Fewer Loans
Number four in the signs, mortgage applications are down as mortgage rates have spiked. Would-be home buyers out there are applying for fewer loans. In the week ending June 10th, 2022, mortgage purchase applications were down 16% from 2021. That’s according to our friends at MBA, the Mortgage Banker Association. Number five, fewer people are shopping for homes. Prices and mortgage rates are going up. Fewer people are out there trying to get homes.
Fewer People Shopping For Homes
An index from Redfin shows the request for home tours through them was down 14%. That was the ninth consecutive decline in that index. There are other reports that show foot traffic. People visiting the homes it’s down 24%. This could be a temporary change because it feels like June and July 2022, there was a lot of stuff that slammed at everybody regarding the economy, inflation, and the Fed raising rates.
It happened all at once. That was also the exact same time that every buyer had to start doing some major recalculation because the rates went from 3% to 6% in 2022. Eventually, prices are going to stabilize more. The buyers who remain in the game are going to have a little bit of time without prices going through the roof and looking at their monthly payment changed by hundreds or even thousands of dollars because the rate went from 3% to 6%.
When we get into August and September 2022, everyone who’s shopping for a home will have already adjusted to understanding that their rates going to be 6% range. That was one article with some pretty solid facts, backing up the opinion that housing is slowing down. That’s five different ways that it said it, but what else are people saying? Is the boom over? Are we going to crash? Is this going to be a correction? One thing that everyone needs to remember is no matter who you listen to, it’s all relative.
The past few years are record-breaking in nearly every way. There is nowhere to go, but into a slowdown. We had record low mortgage rates in 2021. At the same time, as far as the population goes, a bunch of millennials was reaching their home-buying years at that age. All of that led to huge demand from buyers. At the same time that giant demand came up, it was the cheapest it could ever be to buy a home. There were a bunch of people that were at the right age to buy a home. Everyone started going out there, but inventory was crazy low.
Smash that all together and you get a crazy market gumbo. It cannot stay hot forever. We’re starting to see it. Most people are saying again, “Correction, slow down, not a crash.” If you take a look at the showing time index, that’s one of the folks that checks out how many people are making appointments to see homes showing time. Their traffic shows that according to agents and brokers, this is where we are with buyer demand. Look at this data that goes all the way back to 2019. It gives you a good baseline.
If you’re reading this, you got to go to YouTube and look at it to find all these graphs. Picture a graph that has gray normal, blue high, and green going down. Those gray numbers are the baseline. That’s 2019. It shows the skyrocketing, prices going through the pandemic in the blue. While the buyer demand which is there in the green is moderately slow, take a look. It’s still way above our baseline, 2019 levels.
Since 2019 was a strong year for the housing market, this helps to show that the market isn’t crashing where we are. We’re mimicking another strong time. It’s a turning point. It’s moving back towards those pre-pandemic, regular levels. Something else that’s happening is that headlines are also talking about how existing home sales are declining. The perspective on how they’re declining matters.
We’re going to take a look at these existing home sales once again all the way back to 2019. On the graph, you see 2019. It’s the same story there in gray. The blue, blowing up numbers, is the pandemic skyrocketing. We get the green. That’s where we are in April 2022, but all the headlines say, “The market’s slowing down. The number of homes being sold is less.” It’s still more than gray, which was a strong 2019 market.
It’s important that when you’re comparing now to the abnormal pandemic years, you’re not comparing to those, but you need to understand that this data is better compared to 2019. If all this data and the headlines are shaping your thoughts and opinion, look at a more typical year when you’re comparing data to help you with your perspective.
The market is not set for a crash or a correction. It’s a turning point into those pre-pandemic levels. In general, nothing in the market can be summed up. How’s that? It’s all relative. To say that we’ve experienced a relatively normal market would be saying, “Tom Brady is a relatively good quarterback, John Mulaney is relatively funny, or tween-3age Disney channel shows are relatively annoying.” It’s all relative.
Since we love lists, here are the five reasons the housing market is anything but normal. Number one, it’s mortgage rates again. If you go back and you look over the decades, we’ve gone up slowly from 8% in the ‘70s to 12% in the ‘80s. From the ‘90s and 2000s and 2010, we went from 8% to 6% to 4%. Think about that. That was 30 years of that. Over the last few months, we went from 3% to 6% which isn’t normal.
[bctt tweet=”Data and facts are the Gods when it comes to real estate.” via=”no”]
Number two, something that is abnormal, the home appreciation. According to Black Knight, a housing data and analytics company, the average home appreciation on a residential real estate price since 1995 has been 4.1%. Do you remember what 2021 was? It was 19.5%. That’s almost 5 or 4.5 times more than the average. That’s crazy. In 2022, we’ve still been going up 5%, 6%, or 7%. That’s 22% to 25% over the last 18 months, which is going to put a big giant skew in that 4.1% average appreciation since 1995. That means we’ve got to hit a down or a correction.
Number three in the usual market is the low inventory. Raise your head if you’re sick of me talking about low inventory. Drop your hand down real fast to smack yourself on the head there. Why? It’s because this is important to understand. I want you to make sure you get this in your head. I don’t get why the headlines are so freaked out about the baby formula shortage for a few weeks. I get it. I love kids. I got two myself and that would have freaked me out at the time.
Home supply has been a national disaster and a huge problem for a few years, if not going back all the way to 2010 and 2011, but it never seems to get mentioned. The low inventory is affecting everything with housing. The fact that we’re 607% less inventory than we were in 2008 means that this is not a crash. There’s not enough supply to cover even a minuscule demand.
Number four, how long does it take to sell a home during your days on market? The days on market is a stat that is an indication of how hot the market is. It tells you how quickly homes are selling. In 2019, before the pandemic, according to the Federal Reserve Bank of St. Louis, the average days on market back in 2019 was about 68 days. This goes all the way up to the summer. Even with the big jump in mortgage interest rates, it’s still at 40 days. That is way lower than that if you’re talking about entry-level homes. Those 40 days still include a lot of the jumbo larger homes. Around here for me, it’s about two days on the market still in the middle of June 2022.
Speaking of that, the fifth one is the number of offers per listing. We’ve never seen anything like this. In 2013, when I was working with a lot of first-time buyers back then, too, I did see a lot of multiple offers. I learned how that whole process worked for the first time in my career in real estate. It was the first time I saw it that crazy. It started up again in 2017, 2018, and 2019.
In 2019, we had about 2.2 per home. That’s how many offers there were on a home. Keep in mind that this also includes the bazillion-dollar homes that only get one random weird offer. On the entry-level, it’s a lot higher than that. In 2022, we’re looking at five offers per home. That’s way higher when you’re talking about entry-level homes. I have seen 20, 30, and 40. I saw one that had 89 or 92 offers on it in a slowdown, not a crash. This still means we’re going to have 5 to 10 offers.
[bctt tweet=”Fewer people are shopping for homes because prices and mortgage rates are going up. Inflation is very evident.” via=”no”]
In fact, I sold an entry-level home in early June 2022. I had nine offers in the first two days. We ended up selling it to the highest bidder. Do you want to know what that was? It’s $75,000 over the list price. Things are weird now. It’s not just in housing. Things are weird everywhere. The Russia thing is jacking up. The whole gas price thing, what is that all about? The stock market has gone bare for the first time in forever.
The Fed raised interest rates three-quarters of a point. They haven’t done that since 1994. Inflation’s the highest it’s ever been in 40 years. Everyone’s out there talking about a recession. Do you want to talk weird? Even beer manufacturers are having low inventory, claiming that the supply chain is making it harder to get a brown glass. That’s got to be a big bummer for those of you who drink Modelo, Sam Adams, Red Stripe, and Newcastle.
Housing is in a very unusual spot. Expecting it to crash is not a wise move. Understanding the underlying principles of where we’ve been means that where we’re going, even though it’s going down, is still above a normal level. That creates a bizarre forecast and a difficult translation and trying to figure out what the headlines mean. We had an unprecedented quick rise up, but that damn low inventory. I keep talking about it, but it’s important. That likely means that we are not going to crash, but we’re going to correct it.
Searching for all these answers could be uber frustrating. I’m getting lots of readers seeking quick answers to me because they’re getting into a transaction. They’re like, “Should I buy this house? I found out that it needed this thing and that thing to be fixed. Should I ask for a credit or repair? Should I pull out?” People are coming to me with these quick questions and they expect that I’m going to be able to give them a quick little answer. It’s what I call the expectation epidemic. This is the way I want to think about it.
The easiest way to get your answers is to read the instruction manual before you start building something and trying to put it together. You can find your instruction manual for buying a home at HowToBuyAHome.com. As a matter of fact, pretty soon, we’re going to have the First Time Home Buyer starter kit, and that’s going to be everything you need at HowToBuyAHome.com. You got your link to the podcast, YouTube channel, Instagram, TikTok, and tons of free content. You can always help others find their instruction manual by leaving me a review on Apple and on Spotify. Review me, please.
You can’t ask one question before you start a process. You need to try to get as many answers found before you get into the process. To prove that point, I’m going to save that for another episode and make you come back as I talked to you about the whole epidemic that I’m seeing for the expectations and quick answers. You got to read the whole manual before you start building it. Get to work, read that manual, and educate yourself at HowToBuyAHome.com because guess what? You can do this.
Important Links
- realtor.com
- HowToBuyAHome.com
- Podcast – How to Buy a Home
- YouTube channel – How to Buy a Home
- Instagram – How to Buy a Home
- TikTok – How to Buy a Home
- Redfin
- Zillow
- Compass
- Opendoor
- Black Knight
- Apple – How to Buy a Home
- Spotify – How to Buy a Home
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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