Our view of the market and Boston as of June 2022
Dear home buyers,
It’s been some time, we apologize for the quietness. We’ve been focused on improving our platform by listening to buyers, sellers, and agents. We've also been keeping a close eye on what's happening in the real estate market. So, we wanted to update you on our thoughts of the current market.
We understand it’s been a rollercoaster over the last few months. Interest rates have more than doubled, home prices have continued to increase, and many parts of the stock market have been in correction mode. Much of these changes are tied to the infusion of cash by the gov’t due to the pandemic, the lack of home construction that followed the Great Financial Crisis (GFC) and the lowest interest rates we’ve ever seen.
The good news, now? Both home price increases and buyer competition have begun to taper, but just a bit. There is still strong demand out there, especially for move-in ready single family homes, but it’s not as tough or as competitive as it was at the start of 2022. In some cases, you will start to see some sellers be more realistic about their expectations.
A bit about where we are and where we are headed
Interest rate hikes
The Fed’s goal is to slow down inflation and they are using various tools in their artillery to do so. The Fed has signed up for at least two more interest rate hikes in the upcoming Summer. While they are hopeful that they are grasping the depths of inflation, they feel with these rate hikes they should be able to further course control inflation. It is expected that two more rate hikes of 50 basis points each are to come.
Real estate prices
Given the numerous indicators of a recession either already being here or coming soon, many have been asking the question will there be a real estate bubble burst or correction? Unlike the Great Financial Crisis, the consumer wallet today remains strong. Due to continued low supply of homes coming to market and respective demand, today we do not feel that there is a bubble, but as the Fed continues to manage inflation at a minimum there could either be a correction or a strong tempering of price increases.
Housing inventory
We believe the lack of housing inventory has been the strongest reason for the hot real estate market over the last couple of years. There are two reasons for why this has happened– Firstly, post the GFC, the onslaught of foreclosure homes was so strong that new construction builders could not compete with the cheap price of those homes that banks were trying to sell, so they simply did not build. On average, more than 20 million homes were built over a decade in the US prior to the GFC, and in the decade post there were far less.
US Residential Construction
Secondly, the lowest rates we’ve seen during the pandemic allowed many existing homeowners to refinance or cash-out refinance. This provided them with a new mortgage at a low interest rate near 3% and in some cases lower. Fast forward to today, unless they need to move existing homeowners are less incentivized since they just recently got a new loan on their existing home and at a great rate which they cannot get today.
Ycharts.com
What does it mean for you?
At the current moment, in the Boston area prices have not begun to fall, rather price increases have begun to temper. Given some of the recessionary talks and headlines, we see less offers per home, but still most (especially move-in ready homes) continue to go under agreement within a weekend’s time. We will know more as homes close in the following months. We believe until homes for sale increase or a recession hits which impact the jobs of many (and respectively their wallets), there will not be a meaningful decrease in pricing. Also, keep in mind, the Boston area has had a disproportionate lack of housing stock vs. other parts of the country, which continues to prop up pricing. If you are in the market to buy a home, right now there is some additional breathing space (less competition) compared to earlier this year and especially 2021.
What has Nuhom been up to?
You may have seen an email from us yesterday talking about a fresh new look. That’s right, we’ve built out Nuhom to provide buyers more education and a simpler use experience. We will continue to provide more market updates so that you can stay informed and better navigate your home buying journey.
In addition to this, the Nuhom team is working to develop an additional platform that buyers, sellers, and agents can all appreciate and is aimed at improving the overall experience of offer making.