The classic real estate saying is “location, location, location.” The 2022 supplement to that adage might be “timing, timing, timing.”
For the last few years, we’ve been hearing about how hot the housing market has been in many places. Now there are many signs that the hot markets across the globe are abruptly cooling off, according to a Bloomberg article. It reports that increasing costs of borrowing, with central banks raising interest rates sharply to try to deal with inflationary pressures, are causing potential borrowers to think twice about paying big bucks for houses. As a result, houses in the formerly hot markets are looking at double-digit percentage declines in asking prices, and economists are forecasting a significant housing market downturn in 2023 and 2024. That’s a real problem for those people who have a significant chunk of their assets tied up in their houses–especially if they’ve paid “hot market” prices for them.
Yesterday’s consumer price index report in the U.S., which showed inflation is still far above targets, won’t help matters. The higher-than-forecast inflation numbers, notwithstanding recent declines in fuel prices, not only caused the stock indexes to tumble dramatically, it also is expected to convince the Federal Reserve to ratchet up interest rates again next week to try to wring the inflation out of the economy. That move would increase borrowing costs still farther and put even more pressure on potential buyers who would need to finance any home purchase. As interest rates rise, those potential buyers become more and more likely to stay put in their current housing and stay out of the housing market.
History teaches us that hot sellers’ markets don’t stay hot forever, and yet when such hot markets are here, some people expect them to continue indefinitely. It doesn’t take much for a sellers’ market to turn into a buyers’ market–especially if you are a buyer with ready cash who doesn’t need to take out a mortgage to make a purchase. It looks like that is the process that is underway right now, and as long as inflation remains high, that shift is likely to accelerate.