Where is the real estate market headed?

[Thomas W Martin III]

Would love to hear feedback/engagement around this topic.

Rates are certainly going to continue to rise for the foreseeable future and that is really starting to put pressure on prices. I'm a broker/property manager in Greater Kansas City and in September we had closed units drop by 18.5% and pending sales in September were down 20.5% year over year. Inventory in Kansas City was hovering around 8,000 units on the MLS pre-2020 and we are sitting at about 5,500 listings as of today, which is dramatically up from a low of about 1,800 in the height of the pandemic. Low inventory has kept prices from dramatically falling as rates rise, however we are starting to see that price is finally retreating as well. Median KC home prices in June 2022 were $315k and $287.5k in September 2022. For a 90 day period that is a pretty dramatic drop, and Kansas City is a rather stable market relative to the Southwest and Coastal areas. I think the market will get quite a bit darker going forward, with that said there is going to be some great opportunities down the road once the dust settles.

Asset prices in the last 2 years went up dramatically, including used cars. Real estate, specifically, went up 40%. Interestingly enough, the M2 money supply increased by 40%, as well. As the fed purchased bonds and lowered rates, money bacame easy and a lot of capital was deployed across all asset classes. Now the reverse is happening - the Fed is selling $95B/month in bonds causing Treasury and MBS pooled rates to rise. This is causing a dramatic increase in cost of capital and therefore slowing deal flow. Many people/investors I talk to feel that a recession will happen and the Fed will quickly "pivot" and lower rates and stop letting its bond portfolio roll off (the Fed "put"). I do not think they will do that this time and rates will eventually level out and stay there, not decline. We have had a decade of too easy of monetary policy including QE and low rates. It is unsustainable and the next decade will be very interesting to watch. 

Appreciate your thoughts.