Which Market Are You Talking About?

Every few weeks, I sit in a local business owners meeting listening to each person describing what is happening in their respective businesses - current actual activity and forecasted future activity.  It reminds me that every “market” doesn’t run in the same direction at the same time – some are early or late cycle business activity and some are counter-cyclical activity. 

Housing dances to its own tune. We all know that the past two years have been a period of high activity in real estate.  Values were high and the increased equity could be used to buy another home.  Personal balance sheets were reinforced by lack of discretionary spending and government support on every level imaginable. That fueled a housing boom with not enough supply to match demand.

And now?

Observations of the housing market as I write:

Resale homes (90% of the market) have cooled and bidding wars are less common. Listings have increased markedly and priced to get attention to attract offers from less buyers in the market.

The new home market has actually “gotten out over its skis” with a national average of nine months of inventory either on the ground or permitted. This is bringing discounts to the market in both buying down mortgage rates as well as builder upgrades and incentives to entice buyers. 

COVID was like a war with the government printing money to fight an enemy. This time though, the enemy wasn’t a typical army. It was more of an economic war to keep people employed and create demand until the economy could recover. The war seems to be won but a correction is in store.

I contend that high prices always solve high prices and this will continue well into 2024 to get supply and demand in balance.  Yep, it’s going to take awhile for prices to adjust. Where we really end up all depends on two things: inflation waning and how far the unemployment rate will climb to cool off the record levels of demand we’ve seen over the past two years. How quickly these indicators adjust and to what extent will drive the trajectory of housing price adjustments for the foreseeable future.