Is the market slowing down?

Question

I am watching the market like a hawk to gauge the impact of higher mortagage rates. We are scratching on 5% for 30 year fixed, 5.25% if your credit is less than 740. Owner occupied.

Yesterday one of my agents asked if I could write an offer - she had 2 clients interested in the same house, can't represent both, so I took one. We wrote a strong offer, about 10% over asking on a 350 price point, no inspection etc which is a reasonably strong offer for Milwaukee; it was their first offer so I did not want to push them. Of couse we did not score, which was not a huge surprise.

However, this was: they had over 200 showings in a day and a half; and 52 offers. I am pretty sure a lot of people did not even try in face of the competition. Those are all first time home buyers! They are not speculating. And they still very much want a house and will probably try harder next time; very few will change their mind and say we'll just stay with mom and dad...

We don't have a housing bubble, we have a housing shortage! So we will have to build a few, it will take a while..

Nick Robinson · Answer

@Mike JayThe yield curve has already inverted.  Based on history there will be a recession in the next 6months to 2years.  The FED's QT program they want to impose is $95billion/mo. starting in May, $60B in treasuries and $35B in MBS.  Thats a pretty significant position change from 6 months ago.  The biggest thing I am waiting for is when something breaks, which it will, does the FED reverse course like they have over the last decade, or do they keep shrinking their balance sheet?  Only time will tell.

John Teachout · Answer

A lot of people on these forums aren't ancient enough to remember when the interest rates on owner occupied was in the mid teens. Even if rates go up 2% or 3% that's still relatively low interest when looking at historical rate trends. A point or two isn't going to crash the housing market.

Mike Jay · Answer

It will slow down. A year from now will look different. The Fed is very Hawkish and want to jack the rates up fast at least another 4 or 5 times this year. If they flatten the yield curve it will slow down the banks form lending money. What you're seeing is people forcing themselves into houses before rates keep jumping. Plus the Fed was buying so many mortgages to help banks just lend money for the last 12 years, that will be going away (they bought a Trillion dollars worth just from 2020-2021)

Nick Robinson · Answer

@Marcus AuerbachSo, you are still seeing over $500k homes fly off the market?  I understand they have more of a down payment, but the house still gets more expensive as you move up.  A 20% down payment on a $350k house has a $280k loan and a $500k house has a $400,000 loan.  If the cost to borrow money goes up, you will see bigger fluctuations in homes where more money is borrowed.  I do not come on to BP often or listen to the podcast, but I see people posting all the time that it is all about appreciation not about cash flow.  Even though I do believe you need/want both the most important is CF because that protects your investment.  When I see people going 100% appreciation they are speculating.  I agree homes will be more expensive in 10-20years, but nothing moves in a straight line and if you lose your job in a recession and you have a lot of expenses you are going to be in trouble.

Marcus Auerbach · Answer

@Nick Robinson over 500k is considered luxury in our market and follows different dynamics. So for I have not seen a change in sentiment. This is also where all the new construction happens, there is virtually nothing bewlow 500k. Buyers in this segement have more down payment. People buy a house when their family needs change and the interest rate is whatever it is at that point. It was not long ago, people were excited to pay under 6%!!

The other trend that I can see is that people look at what 600k can buy you in the Bay Area (nothing) and then they realize thats luxury in Milwaukee and they can work remote anyways.

@Mike Jay yes you are right it will slow things down - and I hope so! What we are seeing now is not healthy. The question for me is only what will it take. 6%, 8%, 10%?? What we have seen so far means about $200 per month for a typical buyer and that has not made a dent. Of course, everyone wants to beat rising rates, we hear that loud and clear from our clients, it creates extra urgency.

For agents this market is brutal - ironically everyone wants to become a real estate agent right now; it has never been harder to make it to a paycheck as long as I can think back. In my example there are 51 agents who did all the work and got $0. And they will continue to do so. That irony...

As an investor I keep buying; it's been tough the last 2 years but I am happy for what I bought last year and I am pretty sure that I will feel the same next year

Brian Garlington · Answer

Here in the Bay Area it is slowing perceptively when it comes to the SFR's. It's hardly noticeable. DOM is starting to go up just a little bit for those.

Small Multifamily.......... those days on market are tightening because investors want to secure a way to lock in investments and now that it is a little easier to encourage tenants to move out there are options available, but you have to move fast.

Condos around here though are popping up a little more....but their days on market are the longest....but not by much.

Nick Robinson · Answer

@Marcus AuerbachIt looks like the increased interest rates have not really affected the houses at the $350k price point.  How are the houses at higher price points doing?  Those are going to be the houses more and more influenced by interest rates.  At some point higher interest rates will slow down demand the question is at what point will it slow down.  With the record low inventory no one will know that number till we hit it.  There is also the fact that anytime there has been an issue since the GFC the FED has cut rates.  I would assume that the stock market crashes before the real estate market and then we will have to see how serious the FED is about raising rates.

Albert Ng · Answer

Mortage rate has just shot up this month. It would a few more point increase, and a couple months for the effect to show, if any.

Matt M. · Answer

I see no slowing in my market. Houses are still going under contract in a day or two. Or sometimes hours.

Steven Foster Wilson · Answer

That is crazy! I think it is all about being persistent. My mentor is in commercial buildings and he said he does not see it slowing down for the future. I think that there will always be people willing to sell their house and people ready to buy. You just have to find the right one.

Is the market slowing down?

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