July 2022 Housing Data: Low Unemployment + Inflation = a Wild Ride

In my eyes, the July 2022 Portland Metro Housing Report is highlighted by an unhighlighted statistic.?Folks like to talk about average sales price, available inventory, but there is a marker I think that might be an indicator of things to come (how’s that for a teaser?)

Further down in the article – I’ll also speak to the recent short term roller coaster ride active home buyers have seen in recent weeks regarding rates.

First though, let’s roll through the numbers that are headlined as reported by the RMLS.

1) The average residential home in the Portland Metro area is selling for 7.1% more than it did last year (July 2022 vs July 2021).?The math on that is a $42,600 increase in sales price.

2) The available amount of inventory for sale in the Portland Metro area represents 2.0 months. Meaning it will take 2 months for all available homes to be sold, if the spigot got turned off today of new homes coming on the market. ?This is higher than what it has been in previous months, but it is very much still an indicator that shows the power remains with the seller in negotiations.

3) The number of active listings is at the highest level since March of 2020.?Yes, that is correct – we have finally reached the number of homes offered for sale since the Covid-19 Pandemic started (I have March of 2020 as the earmark for the start of the pandemic, as it was the month that in-school learning shut down).

Q: ?????????What is the above data mean for sellers??

Sellers are showing a willingness to sell because they are still getting higher prices (and probably higher than what they’ve expected given all the recent economic news).?Given the positive news on the selling side – folks are eager at a pre-pandemic level to sell because they are still getting more than in previous years (albeit May 2022 represented the ALL TIME high in average sales price; July 2022 represented just a shade below that – however, it is still higher year over year).

Q:??????????What does the above date mean for buyers?

Here is the statistic that I teased you with...?even though the available listings are at pre-pandemic levels, the number of CLOSED sales is at a 5 year low (as far back as the data shows us).?So, the buyers that are buying are paying more but there are just less of you willing to pull the trigger to go into contract – likely because of rising interest rates, inflation scares, and recession talk.?The National Association of Realtors says that the point at which, on average, the buyer and seller have equal negotiation power in a sale is when there is 6 months of inventory in the marketplace. This level of inventory shows the buyer that there are "other fish in the sea" if they are willing to walk away from contract negotiations. ?As you can see with there only being 2 months of inventory available – it is extremely likely that sale prices will continue to increase.?If you are sitting on the sidelines as a buyer and waiting for a ‘market correction’ to come, your rear end will probably be getting soar from sitting. Economic conditions suggest pricing on homes will go up for the foreseeable future.?Waiting, likely means you’ll be paying more for the same house 6 months from now.

What about higher interest rates??Didn’t we see them go down??The answer to that is a hard yes, but also a hard no!

We saw them get better in the first week of August, but on 8/4/2022 a report out of the blue, blew rates much higher.?This was the monthly national unemployment report which showed that unemployment rates improved (meaning more people are working) and stands at 3.5%.?So why would mortgage rates get worse, when unemployment is getting better?

The reason why mortgage rates got worse on that news, is that low unemployment rates mean money is being put into the economy.?This is NOT good news for inflation.?The Federal Reserve is ferociously trying to combat inflation by raising the prime rate to PULL money out of the economy.?More money in the economy means more spending power by consumers, which means more inflation on goods and services – which means inflation is likely going to continue to be an issue.?

This is ALSO the first time ever in the history of ever, where unemployment rates have improved inside of the start of a recession. Economists have no clue on what do with this news.?Uncertainty then equates to risk.?Higher risk and uncertainty always equate to higher rates.

It’s not being talked about yet, but I believe it is very likely now that there is another prime rate hike at the next Federal Reserve meeting of 0.50% or higher.?Until there is a confidence level built around what will happen in their next meeting in late September – I think we’ll see mortgage rates continue to rise in the short term.

So, is now the right time to buy?

Obviously, that is a very personal question – and everyone should have very personal answers.?

Looking at the macro-economic indicators with housing prices still expected to go up and interest rates still expected to go up – it is very likely that not only will you pay more for a house 6 months from now – your monthly payment will be higher as well.

As a reminder, going back to 1976, six of the last 7 recessions saw rising mortgage rates at the start of the recession; only to see them drop below pre-recession levels as we left the recession.?Obviously, I don’t know will this one be like the 6, or will it be like the outlier of the 1 where rates stayed high??

Well, if we are like the 6 – you would refinance into a lower rate down the road. The amount that it costs to refinance down the road is very much likely to be lower than the amount of price increase in the house by staying on the sideline. ?If rates went up, you’d be glad that you bought now protecting you from higher rates.?

Will Home Prices Drop by the end of the Year?

First lets talk about if they increase… Let’s, assume that in December of 2022, housing prices are 7.1% higher than where they were in December of 2021 (matching July's increase). ?That represents about a $40,000 increase in sales price year over year; based on everything I’ve presented here, I think a price increase in that range is much more likely than a price decrease.?Even with a lower number of closed sales, the folks that are choosing to buy are choosing to buy at higher prices.?

It won’t be until more buyers decide to sideline themselves and more sellers put their home up for sale to get that available inventory closer to 6 months.?I just don’t see any economic data that currently suggests a strong likelihood of that.

Disclaimer:

My predictions are my own and based on individual research and don’t reflect that of C2 Financial Corporation.?If there are 36 super computers predicting the weather, just imagine how many there are used to predict economic conditions!?And still, they aren’t always right!?Do not use this article as a basis to make financial decisions in your investment portfolio.?Only do so with the guidance and advice of a licensed Financial Advisor.

Eric Simantel is a licensed Mortgage Originator and Branch Manager at the Ryder Mortgage Group, located in Portland, OR.?He holds an MBA from the University of Oregon (2002).?The Ryder Mortgage Group closed well over $170,000,000 in total loan volume in 2021.

Sources:

All housing data is sourced from the July 2022 Portland Metro RMLS data. Above images and charts are borrowed from the report.

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