A high level view of the current market | July 2023
Many were calling for a crash (10% lower prices, or more) and some were calling for a correction (say 4-9% lower prices), but the average sales price for all of Chicagoland has remained very stubborn! We hit $287,00 in June of 2022, and we hit $289,000 for June 2023 (latest available data).
With interest rates also stubbornly high - at least compared to the last couple of years - you may be wondering, how can prices stay so high? After all, the higher your rate, the higher your payment…the lower the price you can afford!
The answer is, inventory. That is, there simply aren’t enough houses on the market right now, so the demand for every decent house is still very strong!
In fact, in 2020 - when all this craziness began - there was a housing supply of 4.2 months. What does this mean?
This means that, if you froze the market and did not allow any new listings, it would take 4.2 months to sell the entire supply of homes currently on the market.
Today? That number is 1.9 months. This is an incredibly low number!
For reference, 6 months of supply represents a balanced market - so this market still strongly favors sellers!
Now, why is that happening? Why are sellers not putting their homes on the market?
There are many reasons, and obviously those reasons can be very particular to the individual seller. Some of the trends we’re seeing are:
- They have a paid off house. In a number that surprised me, as many as 38% of all US homes are completely paid off.
- They have an historically low rate. Among homes with mortgages, almost 80% have an interest rate below 5%.
- Sellers often become buyers, and many of them are not eager to swap a sub-5% rate or paid off house for a 6.5-7.5% rate.
- My additional hunch - many of these homeowners don’t think these prices are real, especially in the older generations. Because sellers usually become buyers, they can't imagine paying these “inflated” prices, so they decide to stay put.
Naturally the list could go on, but these trends alone would easily account for most of the supply problem we’re experiencing.
That being said, I’m actively looking for investment property to buy. Why is that?
I do believe prices are at a new normal. I also believe that inflation has not fully lifted the economy yet, and so prices will continue to rise, if a little more slowly than the last 2-3 years. Finally, I think there is a great shuffle happening as a result of the remote work trend, the trend out of cities (and back into them, as we shall soon see), and the trend to entirely new regions of the country - particularly to the West and South.
As these shifts occur, the wealth that was concentrated in cities, and in industries like tech, and in states like California, will continue to spill over and raise rents and prices in areas that were long ignored (at least by the wealthy).
Demand in small and medium sized towns in Ohio, or Alabama, or Oklahoma has also exploded, resulting in price increases as high as 20% per year for the last 2-3 years!
So, knowing that there is an on-going housing shortage, and expecting prices to continue to trend up, and expecting rates to dip sometime in the next 2-5 years (so I can refinance if needed), I think now is a great time to buy! And it goes without saying that it remains a phenomenal time to sell. : )