Waiting For Housing To Cool Off?
Hi, I’m RJ Baxter with Fairway Independent Mortgage with your tip of the week. Hope you’re having a great week so far. And if you are waiting to buy a home for the housing market to cool down, this week’s video is for you. I have some sobering statistics to share with you that are going to reinforce a lot of my previous videos where I’ve been talking for quite some time, for a year, something like that, about the fact that we’re likely going to be in this type of a market for quite some time. So, if you’re waiting for the housing market to cool down, definitely listen on, and you might want to reconsider what you’re thinking as far as the housing market cooling off.
So, the first thing I wanted to share with you is housing inventory statistics dating back to 2016. I heard this recently on a real estate podcast from a very well-renowned podcaster named Jason Hartman, and he shared these statistics going back to 2016, just to show how bad the housing inventory situation is right now. So, this is from July of 2016, so looking back five years. The number of homes for sale in that month was just over a million, 1,043,000 homes on the market for sale. And that’s considered about a healthy market. That’s about what we need to satisfy the non-financial housing we typically would see in July.
Going forward to the next year, 2017 in July, that number went down almost 10% to 963,000. So still a healthy number of listings, but down. And then down again, going to 2018, to 899,000. Then going to 2019, we saw an uptick. We went back up to 950,000. But then we started to see some sharp decline. So when COVID hit, we started to see supply issues really hit the market hard. In April and May of 2020, that number sharply declined to 706,000 houses on the market. So, a large, large decline. And then fast forward to right now at this moment, and the number of houses on the market nationwide is 342,000. So this is roughly one third of what we had in 2016, and just illustrates the fact that we are very, very short on inventory. And just to get back to what’s considered a healthy market, inventory would have to triple. And, a lot of experts have been talking about this happening, the fact that this could be our new normal for quite some time.
There’s a couple things that could change what’s going to happen as far as inventory. The first one is, interest rates going significantly higher. So, mortgage rates going up, rates in other types of securities is going up. This could affect housing, increased inventory or lower demand, or both. Also, we need to have vastly improved home construction rates. We need to be building more homes. And if you’ve been watching the news, you know that there’s supply chain issues, builders and all manufacturers are having a hard time getting materials. Materials cost is going up, which is further increasing the prices of homes. So we need vastly, vastly improved construction rates and we’re just not seeing that right now.
So we could be stuck in there pattern for the next couple three years, who knows? Again, no one has a crystal ball, so we can’t predict this stuff. But if you’re waiting for the market to decline, specifically for the housing market to cool off, just remember, the inventory number has to triple just to be balanced, just to be a healthy market. And when we’re talking about mortgage rates, a lot of experts expect rates to go up heading into next year. Now the Fed has talked about the fact that they don’t want to let mortgage rates, or rates in general to go up, which affects mortgage. So if they keep rates low, it’s going to continue to fuel the housing markets, we’re going to continue to see high demand.
And keep this statistic in mind. If mortgage rates go up 1%, let’s say we go up to 4.25, which is still historically a great rate, that means we have to see a decline in home prices of 10% in order for you to have the same payment on the same house today at the current interest rate. So every 1% increase in mortgage rates means that a home has to decline in price by roughly 10% to achieve the same payment. So let’s say rates go up 2%. That means you’d have to see a 20% decline in home prices, which in most areas in Colorado, we didn’t even see that type of a decline in the largest housing prices we’ve seen in a century in the 2007, 2008 crisis.
So this is just some food for thought. So, if you are waiting for the housing market to cool off, market timing rarely, rarely works. If you time the market perfectly it’s luck, no one has a crystal ball like I’ve said, and all of the data and what’s happening in the market is pointing to the fact that likely you’re going to have a more expensive home down the road, and a higher payment because of increased prices and increased mortgage rates.
So just some food for thought, for those of you waiting to buy a home. Yes, it is frustrating out there, but we are getting people under contracts. You have to be a little bit patient. You have to put in offers on maybe quite a few different houses before you get one accepted. But if you’re patient and you stay persistent in your search for a home, you will find something and it will pay off to have a nice home to live in and build equity, build wealth. And if you need help getting pre-approved or you have questions about what you can afford right now, just give me a call, text me your email, that’s where I can help. And once again, my name is RJ Baxter of Fairway Independent Mortgage. Appreciate you watching, have a great day.
