Today's hot news: The market is turning.  Home sales and homebuilding are headed for a slowdown, Fannie Mae says.

Hi everybody, Joe Hillner with Your Home Sold Guaranteed Realty, where we guarantee you a cash offer on your home within 24 hours! 

Ok, so every week, I share market data to keep you informed with the local real estate market.  

Here is this week’s Boca Market Watch.

First, Single Family Homes: 58 new listings, not good, and ranging in price from $379K to another one at $10.9M.  21 homes back on the market, while 47 homes listed took a price decrease, a big jump two weeks in a row, and 5 sellers raised their asking price.  And  a very light week with 38 different properties under contract, and 21 going pending, another sign that the market may be turning.  20 homes were unsuccessful in selling and were taken off the market or the listing expired outright.  And another so so week for sales with 46 homes closed in the past week,  ranging from $359K to $5M!

Next up, Condos and Townhomes:

70 new listings, not bad, and ranging from $165 Grand to $1.95 Million.  14 units came back on the market, 35 properties with a price decrease, and only 1 seller with an increase.  And a decent week with 51 different properties under contract, and 38 going pending,  And only 11 condos or townhomes were unsuccessful in selling and were taken off the market or the listing expired. 87 closed sales this week, pretty good, and ranging in price from $85 K to $4.4M.

Here's what's making news right now.

Fannie Mae's Economic and Strategic Research Group economists expect to see a ‘a large deceleration in home price growth next year,’ with some regions likely to see price declines!

In their latest economic and housing outlook, Fannie Mae economists said that while mortgage rates may have peaked, they expect a “meaningful slowdown” in home sales for the second and third quarters of 2022, followed by a slowdown in new home construction. While there’s a chance of a “modest recession” later this year or next, they don’t see a downturn of the magnitude of the Great Recession of 2007-09 on the horizon.  That's a relief!

As the Fed continues to raise interest rates to stem inflation, buyers are backing out of the real estate market in increasing numbers. Historically, rapid and substantial rises in mortgage rates have had the effect of slowing activity.  The last time it happened was in 2018, when interest rates went from 3 to nearly 5 %, and real estate price increases flattened out and then even dropped for a short time.

Adding to the maelstrom is the current volatility in the stock market, creating a double whammy for some buyers who are not only being quoted higher mortgage rates but are seeing potential down payments devastated as declining stock prices are lowering portfolio values and undermining stock options.

There may be some good news, as in the short term, interest rates have leveled off in the 5's.  If they have in fact peaked out, that would sustain the hot market into next year.  But the Fed has already given guidance that it intends to continue to take 50 basis point increases until it gets inflation under control.  If that carries over to mortgage rates, then any buyers waiting and hoping for prices to come down, could get left in the dust.

Even if home prices fall due to the rise in rates, FNMA projects that, due to low inventory, the declines will not be significant enough to offset the projected increases in interest rates. At the end of the day, the most important number is not the purchase price of any home, but the amount of the monthly mortgage payment.  Here's a quick example: A $400,000 mortgage @ 5.3% interest today would cost you $2221 a month.  Suppose prices dipped by 3%, which would be a dramatic turn around, and rates climbed to 7.3%, and some experts are predicting as high as 8% by year end, that $388,000 mortgage payment is now $2660 a month, over $400 a month more!

So what does that tell us?  When rates are rising rapidly, prices need to fall even faster to offset them.  And if that doesn't happen, and you delay your purchasing decision, you take a chance of pricing yourself out of the market.  Or, if prices continue to increase, even slower than they have been, there's a huge opportunity cost.  Say you decide to hold off till the end of the year in the hope that prices will drop.  And let's assume that the rate of price appreciation cools off to an annual rate of 10%, about a third of what we've been experiencing.  That $500,000 house you want has increased by $25,000, so you've lost out on that equity gain.  And we already know that rates will be higher, so you're hit with a much higher payment to boot.  That's a huge double whammy - not only the higher cost, but the lost improvement to your net wealth.  Not to mention the tax advantages you missed out on.  So that's really a triple whammy!

Many of the great fortunes in our country were made in real estate.  According to FNMA, homeowners, on average, have a net worth 40 times greater than the average renter.  Trying to time any market is a good way to lose money, and real estate is no different.  You build wealth when you buy and hold. That's the message for today.  And if you're thinking about making a move, you owe it to yourself to work with someone who can help you build wealth that will last for generations.