If you’re planning on buying a home, it’s important to understand what’s happening in the real estate market. But with so much happening, it can be challenging to know where to start.
In a recent article, realtor.com’s chief economist Danielle Hale shared what she thinks home buyers need to know about today’s real estate market, including:
- Inventory has dramatically improved in the past year. If you’re looking for a home, good news—compared to this time last year, there’s a lot more inventory to choose from. “Our June Housing Trends Report shows that housing inventory has made the biggest about-face ever in a one year period of time, rising 18.7% over this time last year,” Hale said in the article.
- Pay attention to your local market. While there is plenty of data on the real estate market as a whole, that national data may or may not apply to where you’re trying to buy a home—so while it’s fine to keep your finger on the pulse of what’s going on nationally, when it comes to your experience buying a home it’s more important to research your local market. “The local area where you’re trying to buy could be more or less buyer-friendly than the national data indicates,” Hale said in the article.
- Make sure you’re in a financial position to buy. In the midst of some economic challenges and uncertainty, it’s more important than ever to really look at your finances and make sure you’re in the position to buy before you start looking for homes. So, what does “being in the position to buy” look like? “Mortgage calculators and lenders will advise you based on financial rules of thumb that suggest you should spend no more than 28% of your income on housing payments and no more than 36% to 50% on total debt payments, including housing, student loans, and car loans,” Hale said in the article.
I recently spoke with a gentleman on the phone that said, “I’m not sure it’s a good time to buy a home. The media is talking about a possible recession and the nation’s GDP (gross domestic product) is down.” To be fair he’s not wrong about the nation’s economy. During the second quarter of 2022, growth slowed at a 0.9% annualized rate, which some economists would consider to be the beginning of a recession.
Gross domestic product is a measurement that seeks to capture a country’s economic output. Countries with larger GDPs will have a greater amount of goods and services generated within them, and will generally have a higher standard of living. For this reason, many citizens and political leaders see GDP growth as an important measure of national success, often referring to GDP growth and economic growth interchangeably. Due to various limitations, however, many economists have argued that GDP should not be used as a proxy for overall economic success, much less the success of a society.
The problem is when talking about housing prices in America, GDP is only one small factor and right now we still have a massive shortage of inventory (available homes for sale) so there are much bigger factors at play here. When speaking with this gentleman on the phone, I agreed about his concerns for the economy but explained that the only thing that will greatly impact the housing market right now would be if unemployment jumped to over 10%. During the last big recession 12 years ago, unemployment was 10-13%. When 10% of the population are not employed, there is typically another 30% that is slightly worried about the stability of their employment. When 40% of America is either out of work or concerned about their job, they don’t buy new cars and homes.
That’s not the case today as we are currently sitting at 3.6% unemployment and virtually everyone is trying to hire, so it’s very unlikely the unemployment rate will quickly jump to over 10% in the United States anytime soon. As I told this guy on the phone, “That’s the number to watch if you’re waiting for home prices to drop and you’ll likely be waiting for a very long time.”