May 2022 Real Estate News

Hello! Thanks for tuning in to this month’s newsletter. It’s our goal to bring valuable real estate content and local updates to you, so we hope you enjoy!?

In this e-newsletter, we will provide you with the latest news regarding interest rates, inflation, and how overall population growth affects the real estate market.

The Schwaegerle Team strives to educate and empower all people on the ins and outs of real estate, so thank you for tuning in and following the team on social media!?

When is the Market Going to Crash?

With stocks declining there is a lot of speculation that the real estate market is going to fall right behind it. The truth is the only time we could see the market crash is if demand was low, lucky for us demand is at an all time high. With millennials and Gen Z ready to become first time homeowners, demand is rising, and with these generations being the largest alive the market will most likely stay hot for years to come.?

If you wanted to compare the market now to the market in 2008, you can see that the real problem at the time was the demand was low and there was an influx of supply causing homes to sell at lower value than it was probably worth. Today the complete opposite is happening with demand being high and supply at an all time low. If you were hoping for the market to crash to snag a home that might not be happening soon as real estate is still on the rise.?

Why is inflation so high?

Inflation is at 8.3% as of April 2022. Take a look at the following infographic and see how inflation has been trending upward so much over the past two years. We are now seeing inflation in clothes, food, travel, real estate, and almost everything else.

So why is inflation so high? One of the simplest reasons is because there is more money floating around in the economy. Thanks to the low interest rates, quantitative easing, and printing of new bills, the amount of currency floating through the economy is at record highs. Just take a look below at this hockey stick curve showing the money supply. From January 2020 to February 2022, we have gone from just under $16T to just under $22T in the amount of money in circulation. That is Trillion with a T, which is 1,000 billions. No wonder everything requires more money to purchase right now.?

Organization for Economic Co-operation and Development, M3 for the United States [MABMM301USM189S], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MABMM301USM189S, May 4, 2022

If inflation is going up at 8.5% a year and your money is not earning 8.5% in the bank, then you are losing money every year. This means that if you have cash sitting in the bank earning 1% interest, the purchasing power of that money is going down by 7.5% each year it sits there. This harms people who are trying to keep money in savings. It’s almost better to have that money invested, working for you, and earning a return.

Inflation & Housing

If you are trying to save up enough money to buy a house, you would need to be out earning inflation with your money. For example, if home prices are appreciating 1% a month as they have been (or more) in California lately, the median priced home ($800,000 in California) is going up by $8,000 per month. If you are trying to put 20% down, you would need to save an additional $1,600 per month towards your down payment on top of however much else you need to contribute to get to 20%. For example, let’s say you have $25,000. That is 5% for a $500,000 home, which can get you in a starter townhome or condo. If you are trying to save 20%, you will need to save $75,000, and with home prices going up 1% per month you would need to save an additional $1,000 per month on top of that. Each month of waiting makes it expeditiously more difficult to get into the market and buy a home. Therefore, we are encouraging people to consider talking to a lender sooner rather than later. That way you can find out what your loan options would be and make a game plan so you can purchase a home.

Real estate is a hedge against inflation. In an economy like this where money is being printed and pumped into circulation in massive quantities, the best protection one can have is to shelter their money in real assets like real estate. We ask that you encourage any of your loved ones who haven’t bought real estate yet to look into it sooner rather than later. It truly is a wonderful investment.

Interest rates through the ages

Interest rates have fluctuated for decades, however, we haven’t seen so much volatility with rates than we have in the past few months. Rates have generally stayed within 4% for the past 10-15 years, and after we all had gotten used to rates being below 3%, the sudden hikes above 5% are startling.?

The rate hikes are a tactic used to combat inflation, and with that, purchasing power of buyers decreases. In a market where the price of homes continues to rise, buyers are getting priced out of the market and unable to keep up. While the number of active buyers in the market is starting to decrease, prices are not wavering.?

Interest rates are expected to rise more this year, so if you are considering a purchase, now is truly the best time before the next hike takes place.?

First time home buyer challenges

Why is it so difficult for first time buyers to buy a home? This infographic shows how new construction for starter homes has changed over the last several decades. Back in the 1970s, developers built 400,000+ homes per year that were 1,400 square feet or less, which is the perfect size for a starter home. What happened over the next several decades was a steady decrease in the number of starter homes being constructed. It used to be that ? of homes constructed in the?

US were starter homes, and by the mid 2000s, that number dropped to ?. For this reason, we encourage people to invest in a tangible asset like a house as soon as possible. That way you can get in before overall home prices continue to rise.

Millennials are in the market

The US population continues to rise. The millennial generation is now the largest generation alive, and they are entering their prime home buying years. For this reason, demand for new housing is not slowing down. To narrow it down more, the largest demand in home buying at this time is primarily led by millennials, which account for 43% of all home purchases. There are now more millennials purchasing homes than any other generation. With millennials being the largest living generation and in their prime for home buying, we should continue to see a rise in demand for housing, not a decrease in demand.?