important purchases of your lives and because of that it can be a very stressful situation
because you're going to want to make sure that your investment is going to be a wise investment
first of all but also will carry you forward i've been there myself and i totally understand but we
hear so many media headlines painting a picture of doom and gloom and so you left to wonder well
what is truly happening the fact is no one really knows but what we can do is look at
historic data for predictions and also tap into credible industry forecasters i'm always going
to give it to you straight up that i promise and sometimes what i will say may not be exactly what
you want to hear or hoping to hear but it wouldn't be right for me to mislead you if i felt otherwise
for example there's been a lot of talk about a real estate market crash since 2020. for those
that listened and waited for a crash to happen those people have missed out on building equity
tremendous equity and owning their dream home now having said that absolutely the housing market is
slowing down there are less buyers in the market inventory has gone up slightly and for many of us
this is actually a welcoming change because the pace of demand just was not sustainable at the
rate it had been going over the last two years but the slowdown does not mean the prices will drop
significantly if at all in most of the us markets as a matter of fact Fannie Mae who has received
plenty of awards in the past for providing the best market predictions stipulates that prices
will still move up this year but at a slower rate an estimated 10.8 percent and about 3.2 percent
in 2023. so maybe now you're wondering well why are prices expected to go up if it's looking
like we're moving into recession and the mortgage rates are continuing to go up that's a fair enough
question i think it's important that we understand what drives the mortgage rates inflation and
mortgage rates essentially go hand in hand per Investopedia inflation is defined as the decline
of purchasing power of a given currency over time so inflation essentially means that too much money
is chasing too few goods that is the easiest way to understand it too much money and not enough to
buy we've seen that play out in many different markets right including used car sales and of
course the housing market in the housing market specifically we've had too many buyers in the
market and just not enough listings to satisfy the demand causing multiple offset office situations
and a dramatic price increase in a relatively short period of time and that's the fundamental
supply and demand imbalance now in an attempt to control inflation the u.s federal reserve's
main tool is increasing the federal funds rate to make it more expensive to borrow money
and this in turn decreases demand in all sorts of areas as consumers will spend less when the
cost to borrow goes up and that is exactly what the fed is wanting for consumers to do
save money and not spend it the federal reserve increased interest rates already a few times this
year and they're more planned for this year by the way when the federal fund rate goes up it
is more expensive for banks to borrow money from each other and the higher costs are transferred
over in the form of higher interest rates on mortgages for example so then the mortgage rate on
a 30-year fix is now at 6.4 as of june 2022 which is almost double of what it was in the beginning
of the year when in january it was about 3.22 look at this chart here which plots the 30-year
mortgage rate versus the inflation rate from 1972 to 2019 and just by looking at the trend lines
you could see that the two rates are essentially working in sync inflation goes up mortgage rates
go up when inflation goes down the mortgage rates typically go down there's one exception
and that is in the 2008 recession which was caused by the collapse of the mortgage
market itself the mortgage market today is much much better and homeowners in general
are on solid financial footing now as of may 2022 the annual inflation rate was at a staggering 8.6
but is expected to drop in 2023 when consumer spending starts dropping and when that happens the
mortgage rates will likely start dropping as well now there's a lot of talk about a recession and so
you left to wonder are we really in a recession already the often cited identification of
recession is when two consecutive quarters of the gross domestic product also known as the gdp which
is the measure of u.s output is negative but that is actually not the official call of a recession
the official call is when the national bureau of economic research also known as the NBER calls
a recession however many economists have already pointed at the very high likelihood of a recession
towards the end of this year or beginning of next year i absolutely believe we're headed down that
path because when we look at GDP numbers for q1 january through march it was down by 1.6
and it's also expected to decline in q2 which is the april through june time period the initial
GDP estimate for q2 should be coming out july 28th but the atlanta GDP tracker is already indicating
that q2 will come in negative if we're headed into a recession why is the unemployment rate
so low what is interesting is that right before recession the unemployment rate tends to be
very very low like it is right now which is almost counterintuitive at least to me just look at
this chart here the vertical gray lines indicate periods of a recession and what you will notice is
the low unemployment rate right before recession and then it spikes up as of may of this year
the unemployment rate was just at 3.6 percent which is considered very very low but because
of the inflation and talk of a recession plenty of companies now are starting to lay off such as meta
netflix uber microsoft paypal and plenty of mortgage companies even they're all getting
ready to cut costs and they're starting their layoffs now i foresee many more of these types
of layoffs to be announced as the months go on and i do expect the unemployment rate to increase into
next year now you're probably thinking well you're hinting at a definite recession and an increase in
the unemployment rate this must result in decrease of real estate prices this year or next year right
well let's look at this chart here which illustrates the S&P Case-Shiller US National House
Price Index over a period of time the grayed out areas indicate US recessions with the exception
of the 2008 recession which again was caused by the mortgage collapse the housing market holds up
pretty well during recession there are other charts that go out even further and the housing
market has consistently stayed strong during those other recessions as well looking at all these data
points we have reviewed and hearing industry leaders forecast i don't believe the prices will
come down significantly or at all in the us to see this year or next year and the oncoming recession
is actually forecasted to be a rather mild recession for one while a recession can hit people
hard mortgage rates do typically drop opening up new home ownership opportunities new construction
projects may be slow because of cost-cutting efforts balancing out the supply and demand
to a level where prices stay closely to the same now what we also need to factor in is the current
supply and demand imbalance housing supply is at a historical low as you can see from this chart here
which is an official chart from the white house this chart is actually a great example
of how the real estate prices are driven by supply and demand as supply goes up prices go
down as supply goes down prices go up assuming demand stays relatively consistent here's also
curveball we're expecting an increase of demand from a generational group called Millennials which
were born from 1981 to 1996 and are between 26 and 41 years old today millennials make up the largest
generation population in the world and according to Freddie Mac's millennials at housing research
the majority of them are still renters but as they age and form households they will become
first-time home buyers so the largest population generation will be buying homes in years to come
and that will place extra housing demand pressure now let's look at sarasota data just to provide
you with an example of what's going on in this market as you can tell both the average and the
median price is at an all-time high for june not what you expected right because there's so much
talk of a recession the interest rates have come up quite a bit but we're not seeing it reflected
in the june numbers this is significant because real estate in florida typically slows down in
the summer let's look at the sales price list ratio it has come down from 103 in april to 100
and this means that homes are in general selling at list price and not above that the average days
on the market was 19 days that is the number of days the property is on the market before it
sells which is the lowest in over three years but what we have seen is plenty of listings with price
adjustments so they're dropping the prices here in the sarasota market but i believe it's because
sellers can no longer be aggressive with their pricing strategy so what would happen in the past
is that sellers would price their home way over a comp in many cases and they can no longer do that
buyers have a bit more say in the market now why do i believe that this is the case because when we
look at the average sales price per square foot it still has gone up in june one of the reasons why
we have experienced these very fast-moving price increases over two years is because of the bidding
wars which resulted in some office coming in way above ass and those offers once they were accepted
and actually turned into a closed deal set the new standards for comms however overbidding is
far less likely these days keeping prices way more in check so the housing market is slowing there
are less buyers in the market but there's still also shortage of home supply this slowdown is not
expected to result in any lower prices overall in the us though this is going to depend on the local
real estate market and i recommend that you speak to a local realtor and get their input they can
also pull data trends for you and i recommend you ask them to do that right because you want to see
how the market has been trending over a period of time but with the real estate market slowing
down i do believe you have more time to make a wise decision you also have less competition
making the chances of you getting a home far easier these days now should you buy now or
wait that is an absolute personal decision and you're gonna need to go with what feels right
but if you're selling high to be able to live in florida i think that's probably one of the
easiest decisions then sell and buy now but also take your time to find your dream home
now for first time home buyers should you rent now and wait until the interest rates drop again
maybe have a professional run of financial analysis with different home prices and mortgage
rate scenarios to help you make that decision now i realize that this housing market has been
unprecedented in the last two years just like the last two years have in so many other ways
if you learned something new if you enjoyed this video please like this video
really appreciate it if you're interested in the sarasota market i'm here to help you in your real
estate journey and can be reached any time for any questions and support thank you so much for
sticking around and being here with me until the very end i always appreciate when you do take care