Red Hot Real Estate Market Update – The Party is Over

Market Update – 6/17/22

Interest rates have gone from 2.67% to 5.78%

In April, showings in the West have dropped by 35.3%.

Compass and Redfin announced 10% and 8% cuts to their workforce. 

Affordability is expected to hit 17% once the Q2 numbers have been posted. This means only 17% of people in California can afford to buy a home.

Affordability in California last hit 17% in 2005. Right before the end of the last market cycle. Do you know what happened in 1980, 1989 and 2005? A change in the market cycle.

According to a report by the Norris Group, California’s affordability index is the single best indicator for identifying a shift in California’s market.

So what does all of this mean?

Are we heading into another huge real estate crash?

Unlikely.

Homeowners have a huge pile of equity due to skyrocketing home prices

Even many FHA home buyers that used a low down payment have equity after a year of home ownership.

There was no wide-scale fraudulent lending environment like in 2005.

It’s been a huge pain to get a loan for the last 6+ years and we haven’t seen a large number of overleveraged homeowners. People that got a loan deserved one.

We just went through a huge refinance boom with the lowest mortgage rates in history. This means many homeowners will not want to move because their interest rate or monthly payment could increase significantly. 

Forbearances have dropped from 7.8% in 2020 to under 1%.

Banks don’t want to foreclose on homeowners. Banks are more forgiving than 2008 and many are letting people refinance in 40-year mortgages!

What’s next?

Inventory is already at record lows and it looks like there’s no large increase in sight.

Homes will be harder to sell, due to reduced demand and will sit on the market longer.

Fewer homeowners will want to sell. If you have a 3% rate, do you want to trade it for a 6% rate? 

There is no appetite from the banks to foreclose and the government has made foreclosing on homes significantly harder.

Without a large volume of distressed sales, a crash is unlikely.

The good news is the bidding wars have gone down significantly and homeowners can still get a great price for their homes.

It will be easier for buyers to purchase a home because there won’t be 10+ offers on every listing.

The market has softened significantly already and it looks like prices might go down, but a major crash seems unlikely.

If you are thinking of selling, NOW is the time before prices soften further. Call us at 424-239-5209 and we will buy your property ASAP.

Sources:

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