Thursday, June 20, 2024
44.0°F

Marty and Max: The Dirty (Harry) Truth About the Market

by MARTY WALKER
| May 17, 2024 1:00 AM

The real estate world has very much resembled the wild, wild West. Who better to personify the industry than Clint Eastwood who starred in the classic, The Good, The Bad and The Ugly? This pretty much summarizes our market.

The GOOD 

Let’s start with some good news for homeowners. U.S. existing-home sales improved for the second month in a row, jumping 9.5% which is the largest monthly gain in a year. Locally the median price of a home has increased from $470k to $515k since January. The national median existing-home price is roughly 48% higher than in January 2020. Nearly half of mortgaged residential homes in the United States are “equity-rich,” meaning they have at least 50% equity in their homes. Housing prices rose 50% faster than income over the past two decades. Does this sound like North Idaho? This is amazing news for homeowners. Our market looks and feels much like a Dr. Seuss reality, Red State Blue State Old State New State. More good news for our local market is that many of our higher-end buyers are carpetbaggers who have seen the error of their ways from the Blue States, and although interest rates do matter, they are not the only consideration. 

The BAD

The Federal Reserve is trying to control inflation, which has been surging since 2021 and hit a 40-year high of over 9% in June 2022. In March, inflation rose higher than expected. Anytime we get an “above expectation” number this is not good. The Fed’s target is 2% so we are still well above their target goal. With four consecutive high readings here, we can almost rule out any rate cuts this summer. We would need to see a pretty significant drop in inflation.  The only other potential possibility to cut rates would be if we have a market catalyst (aka war, something like COVID, etc.) or we miss the “soft landing” narrative and fall completely into a recession. 

 The U.S. Federal Reserve made no changes at the end of last month noting disappointing inflation readings that could make those rate cuts a while in coming.

Unfortunately, it means rates are likely going to stay higher throughout the summer. This 7+ range will probably be the new norm for a while. Yes, we will have some ups and downs but largely we will stay in this range this year.  

The Ugly

Are we going to have a real estate pivot or market correction post-election? History supports this. From 1963 to 2019 non-presidential years, the norm is -9.8% decrease in real estate sales from October to November. In presidential election years this plummets to -15%. Locally the word on the street is that our home prices are not sustainable, and a market correction is near. One of my larger investors who builds globally is preparing for a post-election correction in price. Will this be a crash or a correction? That is the question. Other factors include that thousands of new homes will be available in the fourth quarter and supply may catch up with demand resulting in lower prices and lower-cost building methods are near that can reduce building costs by up to 50%. If a buyer can purchase a similar home as yours for half the cost, this impacts your home value. 

There are many differences between today’s housing market and the 2008 housing crash. Lending standards have evolved which means homeowners are less likely to default. Homeowners who borrowed with adjustable rates leading up to the 2008 crisis got hit with payment shock resulting in much higher monthly payments. They could not afford the increase payments and simply gave it back to the bank.

Most borrowers today have a fixed-rate mortgage and although mortgage rates may have increased, their monthly payment has not. In the lead-up to the Great Recession, the housing market had been fueled by rapid credit expansion, very much resembling 2008. This is not the case today.

My best advice to sellers in 2024, is listing their homes by the end of June. This allows sellers to find buyers before the fall slowdown, before the election, and perhaps post-election drama. Could we have riots, a real insurrection, or civil unrest?  Who knows and no one can know if we will have a correction this year. 

If your goal is to buy in the next few years, but are waiting for interest rates to fall, then it all comes down to another Clint Eastwood classic, Dirty Harry. His famous line is exactly where you are, with the exception of the punk part of course. "Do I feel lucky? Well, do ya, punk?” 

For more information, contact Marty Walker at marty@21goldchoice.com. This article was not written by and does not necessarily reflect the opinions of Coeur d'Alene Regional REALTORS® Source Reuters & CDA MLS