Why buying real estate in a cooling housing market is a hot idea!

Most people we talk to who are considering purchasing a home have asked us if we still think it’s a good time to purchase a home. With the San Diego County median home price now $800,000, down 15.8% from October 2021 to October 2022, it’s not hard to imagine why this is the number one question we are continually being asked? It’s important to remember that not one credible forecaster is calling for a housing crash, especially one like the nation saw in 2008. The 2022 housing market is simply experiencing a pricing correction.

Extremely low inventory from April of 2020 through January of 2022 was coupled with markedly higher than average purchase demand, escalating home appreciation into double digit growth. That rapid growth was simply unsustainable and can be easily classified as the pandemic inspired housing market. With interest rates doubling in the last 12 months, the number of homes available on the market have increased by 43.5% year over year. Demand can best be measured with the change in pending home sales, which is down 19.4% year over year. What does all this mean? In short, the market is resetting to pre-pandemic levels; this is actually healthy for home values long term, as pricing stabilizes. With interest rates hovering around 7%, people in the market to purchase a home are approaching with caution. 25% of sellers have affected a price reduction year over year and are now incentivizing prospective buyers with credits for repairs, credits for interest rate buy-downs, and paying for home warranties. Gone are the intense bidding wars that saw dozens of buyers waiving home inspections and paying markedly over the appraised value just to purchase a home.

Meanwhile, some investors with standing inventory are shifting from attempting to sell homes from their portfolio to leasing those properties as the market continues to cool; which is a unique option compared to other investment vehicles like stocks, commodities and cryptocurrencies. Some of the best pundits are declaring that now through summer of 2023 will be the best time to buy a home, as an official “recession” most often correlates to lower interest rates on the horizon. Additionally, the United States as a whole has a shortage of approximately 5 million homes compared to population demand, as many of the home builders who exited the trade due to the 2008 crash did not return to building. It will take 5-7 years to build out the foreseeable demand for housing, and that projection maybe greatly extended due to builders slowing efforts with the current market cooling.

With less competition in the market at present, and the potential of decreasing interest rates due to Recession policy, the best time to purchase a home in the next 5-7 years will be over the next 9 months. This is even echoed by Dave Ramsey, the guru of saving money and building personal wealth. One of our favorite expressions is “buy the house, date the rate”. In closing, it is worth nothing that the interest rate in renting property is 100%, as the renter is paying off the landlords property, month after month.

Who do you know that would benefit from this information, or is there another question about housing that we could help you answer?