The housing market continues to be volatile in 2023. We ended 2022 in a very slow frozen market with very few transactions taking place.  We saw rates come down in January which motivated buyers to come off the fence and jump back into the home buying process.  The activity picked up so fast that some were saying the “buyers’ market” was over and we even saw homes going for over asking price with multiple offers, then almost as quickly rates jumped up and cooled off that early thaw. Buyers moved back to the fence and sellers did as well, not wanting to trade their 3% rate for something near 7%.  So, we drifted back to the stagnant market for a little over a month until the most recent event of the SBV bank collapse that pushed rates back down around 6% and sparked some activity again.  Up until this point rates have been majorly affected by stubborn inflation.  Now that we have a potential banking crisis and the focus is on whether the Fed policies were too much too fast and potentially put the banking system at risk.  Personally, I think things will be fine with banks and once we pass this crisis point, focus will return to inflation, which is still a very real problem.  We saw rates tick up Tuesday due to some negative inflation news but are now falling again today with the crisis potentially spreading to Europe.  We will see how this plays out. The point of this long intro is to point out that the rate and housing market is very volatile right now and will be on a roller coaster ride for the near future.  For anyone looking to buy, I want to help reset your focus from the short term to the medium and long term. 

A house is a long-term investment, so it’s important to look at it this way.   Just like a 401K or IRA account, you invest in it and don’t worry about short term fluctuations, because over the long term the account will appreciate.  A house is very similar to your retirement accounts, in that it may toggle up and down in the short term but over the long term it will appreciate, and you will benefit from buying it.   The main difference that I would like to point out is that unlike a 401K or IRA statement you get each month and file, you get to live in and enjoy your house along the way.  That’s a massive benefit worth thinking about.  Not only does this asset appreciate over time, but you also get to live in it and enjoy your life in and around it the whole time.   Just think if you could lay on a couch and eat chips inside 401k statement.  That is essentially what a house is. It’s an asset that over time builds equity in both directions by paying down your loan and gaining value appreciation.  That’s a huge factor to consider. 

When you pull back and look long term like this, the fluctuations in the short term become ripples that you don’t really notice because you have been busy enjoying your life in your own home that as long as you pay the mortgage, nobody can evict you or tell you that you can’t paint the walls a certain color.  The focus right now is on people trying to time the market with the best combination of rate and purchase price. I understand that mindset but it’s important to consider that the only way to know the bottom of the market was to have missed it, and if the January warming of the market showed me one thing, it’s that there is a lot of demand for houses.  I like to call it shadow demand, as in people are waiting in the shadows for the signal that it’s the right time to buy and once they see the signal they will come out of the shadows and eat up what limited inventory there is.  The lack of inventory is a big factor with this current market and one of the main conditions for keeping prices steady.   It’s for this reason that we are unlikely to see a major price drop in the market or  a “bubble pop” that a lot of buyers are hoping for.  This doesn’t mean there won’t be some deals to be had at the same time.  Rates are going to toggle, and I think the best case is they get into the 5% range, so waiting for 3% to come back doesn’t make sense.  I know this all sounds like bad news, but remember what I said earlier, about this being a long-term investment and looking beyond the current market conditions at the value the house will achieve over the years.  

Right now, buyers have some power of negotiation, that may erode quickly if the conditions materialize that pulls enough buyers back into the market like we saw in January.  It won’t take much with the current low inventory.   Does this mean you have to jump back into the market even if you aren’t ready? No.  But if you can buy now and can take advantage of the benefits buyers currently have, I would advise you to at least get your file ready and start looking at what’s out there in case the right home becomes available.  One of the problems is that people are very hesitant and reactionary, and it takes a headline or newscast spotlighting the warming up of the market to motivate them back to the table.  The problem with this is that if it’s on the news, then you are already behind and everyone else has the same idea, which brings us back to multiple offers and over asking price sales prices.  Be proactive and know that the market is volatile in the short run, but in the long term you won’t look back at your house worth 700K and be too worried about paying 600K or 605K.  You will be too busy thinking about the memories you created along the way, and it won’t matter what the price fluctuations were because you were too busy living in it and not thinking of selling anyway.  The only people that need to worry about the short-term market rollercoaster are people who plan to resell in that same market.  This would be home rehab flippers for the most part.  If you plan to live there for 5,10 or 30 years and beyond, your focus should be finding a house you can make feel like a home and enjoying it while it appreciates.   There is too much focus on the short-term gain due to the wild ride we took during the pandemic.  Homeowners were intoxicated with the rapid appreciation, but that is not normal.  Historically homes may appreciate nearer 5% to 8% a year over a long term and over that time turn into a valuable asset akin to a retirement plan you have been living in the whole time.  

The market going forward is going to be a rollercoaster with all sorts of twists and turns. I cannot promise any one direction for certain, nobody can.  This Bank “crisis” is a good example.  Nobody saw that coming and created a large rate drop.  But if you change your mind set a little and focus on the long-term advantages you will see that missing out on the right house over 5-10k in price is minor to the long-term value appreciation and you risk some new curveball hitting the market and evaporating your current advantage as the buyer in this current market.

 A personal example:  when I bought my current home in late 2019, I assumed I was overpaying and was expecting the market to drop in 2020 but I needed to buy at that time and didn’t let it bother me.  We all know what happened in 2020 and saw the crazy price appreciation that occurred, so I ended up being thankful I bought when I did.

This blog post is just some food for thought.  We all assume we know what the future holds, and most expect lower rates and home prices, but we really don’t know and in this ever-changing world we live in, things are even more prone to wild card events that change the course.  Of course, you need to be able to afford the payment and be happy with your choice, I wouldn’t support the decision to buy without those two factors being present.  But waiting around for better conditions that may not materialize is also a risk.  Either way, I will be here to help when you do decide to make the move and happy to opine and inform along the way. 

Final thought: Looking at the history of home prices from 1941 to today, home values have increased 73 years, decreased 7, and been flat one. That’s a pretty good record that you would not want to bet against. And the concentration of losses was during the 2008 housing bubble era, where there was wild speculation, not enough demand, and a glut of supply.