Where is the real estate market headed?

Question

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.

Nick Benjamin · Answer

When in doubt, zoom out.

According to the latest HMLS stats, both median and average home prices are up 11% in Sept 2022 compared to Sept 2021. Days on market has also decreased from 24 DOM to 22 DOM in Sept 2022. Things have cooled down a bit, but the market is still very hot IMO.

Jay Hinrichs · Answer

To me its part of the natural cycle of Real Estate. There will be a thinning of RE agents Mortgage brokers  title company employees  sub trades etc et

what will lead to over all stability though is the amount of real estate owned free and clear much more than most investors probably realize

and as it relates to owner occupied areas the amount of sub 4% fixed rate financing that in most instance payments are less or equal to rent.

So I think you will see folks just stay put more than we have seen.  Building will slow dramatically in new construction homes again leading to fall out in the materials and sub trades..

If these rates are sticky or continue to rise then thats what I see happening.. Still lots of cash out there.. I have 3 new builds in escrow right now at 850  900 and 900  that are all cash buyers just waiting for me to finish the houses so thats good.. but our move up buyer and or starter has slowed to a trickle and we will be very conservative on new starts as to not get over our ski tips and will continue to run with limited over all debt.  The max debt refi till you die folks are in for the long haul prices drop 10% they are now underwater and will just hold or if they exit they will lose their equity

Thomas W Martin III · Answer

DOM is up 20% you from 20 to 24. Prices are up from last year, but dropping materially since June. The market has slowed quite a bit.

Eliott Elias · Answer

It's headed towards a ton more deals for me

Adrian Lemus · Answer

Come back to WPB!

Vicki Ducanois · Answer

Hi, I agree with your above statements and believe that you are lucky that your 3 new builds already have cash buyers. I just moved up to South Carolina from West Palm Beach Fl.  into a very rural area, Greenwood, hoping that I could start an investment business of building homes, renewed my broker license up here too. Now I am scared to death, the housing market in SC is not a great place for high investment. I was hoping to build two homes paying cash, one would sell for $550,000 the other for $350,000 but now am not sure I would get these amounts as the market really seems to be crashing here in real estate.  The local people here don't have that kind of money and must take out a mortgage. Mortgage rates are going thru the roof and they are saying it will increase. I really don't know what to do. Should I go forward knowing there will be very little income profit? Any advise?

Where is the real estate market headed?

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