The Housing Market is Shifting…

Well, it appears that the days of homes being sold for tens of thousands of dollars above the list price in a matter of days are starting to become a thing of the past…or is it?

Over the past couple of weeks, mortgage rates have gone through the roof with the average rate for a 30-year fixed-rate mortgage nearly doubling since the beginning of this year.

In this blog, we’re going to be taking a look at how the real estate market in Harford County has changed over the past year.

But before we get into all of that, let’s take a stroll down memory lane to understand how we got here in the first place. Back in 2020, when the pandemic made its entrance into our lives, the real estate market came to a halt with the fear that the economy was going into a recession.

However, everything changed when the federal reserve, which is the central banking system of the United States dropped the federal funds rate to nearly 0%. Doing this made it cheaper for banks to lend money to one another, which in turn incentivizes consumers and businesses to spend money. And as a result, mortgage rates became cheaper than they have ever been.

People being able to borrow money to buy a home for as cheap as they were CLEARLY was not sustainable and it played a role in home prices across the country going up a whopping 18.8% in 2021. It also caused inflation to reach 8.5%, which we haven’t experienced since the 1970s.

To combat rising inflation, the federal reserve started raising the federal funds rate back in March of this year, which made the days of cheap mortgage rates a thing of the past. The federal reserve plans to continue raising the federal funds rate until they’re able to bring inflation back to the target inflation rate, which is 2%, and we have a long time before we get there.

If you’re still confused about all of this look at it this way. If you’re feeling tired, but you need to stay awake because you procrastinated on a project that’s due tomorrow, what you’ll probably do is drink an energy drink.

Now you’re feeling very energized for the next couple of hours, but the caffeine is starting to wear off, so you drink another one and another one. You’re eventually going to have to get some sleep, so you stop drinking those energy drinks, and once the caffeine completely wears off we all know what happens next…you crash, and that’s pretty much what’s happening to the real estate market right now. The real estate market and the rest of our economy were supposed to go to sleep when everything shut down as a result of the pandemic, but when the federal reserve made it cheaper to borrow money they essentially were giving the economy an energy drink to keep it going.

ok, maybe I’m going a bit overboard with that analogy, but what I’m basically getting at here is that we can’t keep going up forever, the real estate market is eventually going to pull back.

So let’s now get into how the real estate market in Harford County has changed over the past year. As a realtor, I have access to what is called the “Multiple Listing Service”, which provides me with an endless amount of data on the real estate market.

What I was interested in finding out is the difference between the number of homes that were sold in Harford County in May of 2021 and May of 2022. Now I predicted that there would be fewer homes that sold in 2022 than in 2021 because of the rise in mortgage rates as well as critically low inventory, which ended up being the case. Here is all of the data that I collected from the research that I did:

May of 2021

Total number of homes that sold: 450

Percent of homes that sold OVER the list price in 2021: 42.0%

Percent of homes that sold UNDER the list price in 2021: 28.8%

May of 2022

Total number of homes that sold: 358

Percent of homes that sold OVER the list price in 2022: 64.0%

Percent of homes that sold UNDER the list price in 2022: 12.6%

What I wasn’t expecting was for there to be significantly more homes that sold for more than the list price. In May of 2021, 42% of the homes sold over the list price while in May of 2022, 64% of homes sold over the list price. With mortgage rates rising, I was expecting people to be hesitant about buying a home for more than what it was listed for, but it appears that people are trying to buy a home as soon as they can because they expect mortgage rates will continue to rise, so they want to lock in as low of a rate as they can.

And the data that I’m sharing with you all is a bit misleading because a lot of these homes went under contract around the end of February and the beginning of March, which was before the federal reserve started raising the federal funds rate. So a lot of these buyers were frantically trying to get a home under contract before mortgage rates inevitably went up.

So after reading through all of this, you’re probably wondering, “is now the right time to buy a home?” and my answer to that question is quite simple…if you feel that you are financially and emotionally ready to buy a home, then don’t wait to do so because it’s nearly impossible to predict what’s going to happen to home prices in the short term, but I’m willing to bet that in the long term, home prices are going to be significantly more than what they are today because that’s what they have done historically. And you know what they say, “time in the market beats timing the market”, so if you feel that you are financially and emotionally ready to buy a home, then please feel free to reach out to me, I would love to have the honor to guide you through the process of buying a home!