Never have I seen a real estate market with so many different versions of reality, and layers of data that can be counter-intuitive when it comes to analyzing trends, values and potential risks. This is indeed what makes me think of quantum physics!
During the past two years, most leading news sources have been focused on two things;
- “It’s not 2008” – therefore, concluding there’s no risk of foreclosure, market bubbles or recession;
- “Low Inventory”
Of course, both of these are facts. However, it’s not that simple! It now seems like “the good old days” when our biggest challenge was teaching new agents how to calculate “absorption rate” or how quickly the market will absorb the current inventory,
Absorption rate, months of inventory, median closed sales prices and days on market were our tried and true measures of market activity, and whether it’s a buyers or sellers market.
- Related article – How to price your home in 2022
During the past two years we’ve had significant micro-market shifts where the average sales price dropped significantly at the same time inventory remained at less than 1 month. This was the case in almost every micro-market I report on back in February. However values were still strong, with multiple offers on attractive properties. This complexity led many to ignore what were clearly early warning signs of a softening market.
Real estate isn’t an isolated dynamic. During COVID, market trends have been largely driven by economic and demographic changes that are not typical of the normal ups and downs of real estate. Dynamics unlike any past bubbles or recessions we’ve experienced.
June 2022 appears to the pivotal turning point, following the shifts on Wall Street from a BULL market to a BEAR market. Yes, it’s not 2008 and we aren’t seeing a unilateral market crash as we experienced in the mortgage crisis. However, markets that have been experiencing 20-30% increases in values have softened and “normalized.” Each area, and each market segment (condo, townhome, multi-units) has differing statistics.
- Fox News warns of Economic Hurricane
- Realtor.com – No One Saw It Coming: How a Housing Market Curveball Has Completely Changed What Buyers Can Expect in 2022
- The Economist – What America’s Next Recession Will Look Like
Bloomberg’s recent article quoted a statistic that’s new to me; a Misery Index, currently at a level on par with 2012 and almost as high as the beginning of the pandemic.As we analyze real estate market data, it’s imperative that we look at trends in context of the greater economic dynamics.
From the beginning of the COVID pandemic, main stream real estate news has ignored the greater context of the impact of economic and demographic shifts. Rapidly escalating values, shortage of inventory and competing offers were driven by temporary external phenomena driven by the pandemic. Initially we had a wave of New York buyers, willing to pay premium prices for large luxury estate homes on the Main Line that previously had lagged in sales. At the same time, in 2020 it was almost impossible to sell a condo in Rittenhouse Square due to the riots and fear of living near others (elevators, common areas, etc.).
In the midst of our market spikes, most news sources were solely focused on “it’s not 2008” rather than clearly reporting on current external phenomena. Yes, it’s not the mortgage crisis, however we’ve clearly had vulnerable economic dynamics throughout the past two years.
Market shifts can only be called in hindsight and it appears June 2022 is a turning point.
Be sure to subscribe for future updates. Let’s talk and we’ll dig into information that will help you with your short term and long term real estate goals.