Derek English: A Shift, Not A Bubble, In Real Estate

Wednesday, August 3, 2022 - by Derek English, president, Greater Chattanooga Realtors

If you follow the news, and especially if you follow real estate, you know that inflation has led to increased mortgage rates, which has also contributed to the recent cooling of the residential real estate market. There are a lot of moving parts and it’s becoming a little more difficult to know where the market is heading.


I always say to consult an expert, whether it’s a realtor, physician, or a mechanic.

And so I look to two such experts when it comes to market trends in real estate: Dr. Lawrence Yun, Chief Economist for the National Association of Realtors (NAR), and Dr. Jessica Lautz, NAR’s vice president of Demographics and Behavioral Insight.


"Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date," said Yun. "There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize." But what does this mean for home sales, at least in the short term? "Home sales will be down by 13% in 2022, according to our latest projection," Yun added. "With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023."


So home sales are having an inverse relationship with the rising mortgage rates. But does this mean that we’re experiencing a housing bubble? In a report for the National Housing Conference, researchers David M. Dworkin and Bill McBride explain the difference in today’s market and the market of 2008. “During the housing bubble, toxic mortgages with teaser rates (usually around 1%) made houses seem more affordable. But when teaser rates reset to market levels, many of these mortgages failed because homeowners could not afford the actual cost of the mortgage. Today, soaring housing costs are driven by the compounding impact of apparent underproduction between 2008 and 2020, housing supply chain failures since 2020, and increased demand since 2020.”


So no, according to experts, we’re not about to experience another housing bubble, but we are experiencing something else that is an obstacle to buyers; housing affordability. In fact, excluding the housing bubble of 2004-2008, it is the worst affordability since 1989, according to Dworkin and McBride. In fact, according to NAR, buying a home this past June, on a national average, was about 80% more expensive than in June 2019. Nearly a quarter of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home today.


What are some trends in the houses that are being purchased? Lautz offered five “touch points” for realtors to reach out to clients in the current climate:


•12% of buyers are purchasing homes virtually—and they want a realtor to assist with the process.

•Remote work continues to influence buying trends: 34% of buyers want features that enable them to work from home.

•Consumers continue to have a skewed view of the typical amount required for a down payment. Thirty-five percent of buyers believe a down payment of 16% to 20% is required; 10% of buyers believe they need a down payment of more than 20%. However, the typical down payment for a first-time buyer is only 6% to 7%. For a repeat buyer, it’s 17%.

•There is value in promoting energy efficiency in listings: Forty-four percent of realtors say it’s “somewhat valuable,” and 19% say it’s “very valuable.”

•Seven in 10 buyers report a desire for the latest in heating and cooling, windows and doors, insulation, lighting and appliances; however, the typical home purchased is 29 years old and unlikely to have the newest features. This disconnect presents an opportunity for realtors to contact previous clients about satisfaction with their current home and any improvements they have made.


The insight that these experts provide is not only interesting, but crucial to getting the full picture of the real estate market. I’ll also add that Greater Chattanooga Realtors is partnering with the Homebuilders Association of Greater Chattanooga to host our annual Economic Outlook Luncheon on August 17, and Dr. Jessica Lautz will be the featured speaker. visit gcar.net/events for more details.


And so consult the experts, get the data, and be prepared. An important step to take in this process is consulting a realtor to help walk you through the homebuying or selling process. Realtors work for their clients and communities everyday.


Derek English: Rising Mortgage Rates Starting To Slow Housing Market

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