As states issued strict lockdowns two years ago, it was a foregone conclusion that the U.S. housing market would slump. After all, with the COVID-19 recession sending the unemployment rate to its highest level since the Great Depression in April 2020, how could residential real estate not sink? Only it didn’t happen. By the summer of 2020, both the U.S. economy and the housing market had flipped from recession into expansion. Over the past two years, that pandemic housing boom has seen U.S. home prices soar by 34.4%. Two years later in the summer of 2022, we are just now seeing the real estate market begin to cool down.
Now, I want to be very clear with my words. I said “cooling down,” not dropping, not going backwards, and definitely not free-falling. We will not see home prices dropping anytime soon. With home inventory levels that are still at one month (meaning, if no more homes came on the market, everything currently for sale would sell off in 30 days) we would need to be at six months of inventory to drop back into a “balanced market”. With only around 4,000 homes currently on the market in Kansas City, we’d need to see home levels rise to around 12,000 active homes on the market and there are still plenty of buyers aggressively looking for homes to buy right now, so that’s likely not going to happen anytime soon.
Some realtors insist that it’s been a seller’s market since 2015 and I would agree with that statement. But the U.S. real estate market generally follows a pattern of roughly 18-year cycles, which has held (mostly) true for more than 200 years, according to real estate research organization the Homer Hoyt Institute. If their data is correct, the seller’s market could hold firm until 2033 — and it won’t be practical for most buyers to wait that long to make their first home purchase.
“April was an inflection point in the housing market where there were just early hints of slightly cooler demand. The May housing market captured an even greater shift,” Ali Wolf, chief economist at Zonda, a housing market research firm. “The shift needs to be put in context. Housing demand was manic for the past two years, and the shift that we’re seeing so far isn’t catastrophic. While demand has softened, there are still more buyers than sellers given the acute lack of inventory.”
I’ve been giving my own example to our clients. “In the last two years, the real estate market has been going 190 miles per hour. In May and June 2022, we’ve slowed down to 90 miles per hour. We’re still going way over the speed limit, but it’s not as crazy as it has been.” Prior to May, my real estate team would place a home on the market and see 20 or more buyers preview the home in the first two days and we’d get 5 to 10 offers over the asking price. Today, if the home is priced correctly and updated, we will get 3 to 10 buyers to preview it in the first few days and 1 or 2 offers at full price or possibly $5,000 over the sellers asking price.
This is a good thing! Over the last two years, I’ve spoken with literally hundreds of people that told me they’d like to sell, but this insane real estate market scares them. They know they can get a great price for their current home, but buying their new home is the challenge. Now that the market has shifted, much of that fear has dissipated and we are seeing people decide to move up, downsize, or buy their first home. As a matter of fact, June 2022 was the 3rd best month of sales my real estate team has ever had, with 13 families helped and $3.9 million in sales! This is more normal and I expect that trend to continue as first-time home buyers jump back into the market along with “move up” families that can now take a little more time to make a decision on their new home.
Many of our buyers this last month told us, “I’m seeing more homes come on the market and they are not selling in 24 hours. We’re so glad we made this move!”
If you’ve been sitting on the sidelines because this market scares you, now is the time to get moving. Let’s talk and see if it’s the right time for you.