Real estate market crash 2022?
Will the real estate market collapse in 2022?
It’s not as much of a seller’s market anymore, but it’s still a seller’s market. There isn’t much to sell and there aren’t many people who can afford to buy it. I think the market is just going to crash. Inventory is incredibly low, and affordability is also incredibly low.
I think this market is just going to crash. There will be very few sellers, very few buyers, and very few transactions. The market still works, but the number of people who can afford to participate in this market is simply much smaller. The number of transactions will drop and continue to drop. The number of real estate agents will also decline.
Let’s look at the inventory
Inventory is slowly increasing in Sussex County, but the number of new homes listed in May 2022 is actually lower than in May 2021. There just isn’t much for sale.
To give you a perspective on the market – as of June 2022 there are approximately 1200 residential listings in Sussex County, DE MLS. As of June 2018, there were over 4,100 residential listings in the Sussex County MLS. That’s a huge difference and a massive decrease in inventory. The market in 2018 was not bad. Inventory was already down by then.
Interestingly, the number of closed units in 2022 was 561. In 2018, that number was 535. The Sussex County market in 2018 was a healthy real estate market and sales were about the same in total number of transactions.
Two huge things have changed
First, stocks fell. From 2010 to 2020, the average monthly inventory was 4,966. Inventory in May 2022 was down 75% from historical levels over the past decade. It’s amazing.
Second, prices have gone up. The reality of Sussex County real estate is that there is always a high demand for properties. At the same time, stocks have been falling steadily for years while demand has remained the same. Simple economics will tell you that when demand is high and supply is scarce, prices rise. This is exactly what happened. Prices have risen considerably in recent years.
Interest rates have practically doubled in 2022. In 20 years in real estate, I have never seen rates increase so quickly. This has a dramatic effect on the market. First, it reduces the number of buyers. People who depend on tariffs can’t buy that much house. Some of these people simply won’t buy – and so the number of buyers will continue to decline as interest rates rise. Second, most sellers are also buyers because they sell one property so they can buy another. Some of these people will simply not sell because of their lost purchasing power due to interest rates. Rising prices generally do not deter this segment of buyers – they will sell high and buy high without any problem. The problem is when they can’t buy at a high price because interest rates are so much higher than they were six months ago. My theory is that inventory will remain low. People will just stay where they are. The market will slow down.
So where do we go from here?
It is still a seller’s market, but the days of price appreciation are largely over. We recently listed a house for $50,000 more than our market analysis. They received two offers in the first ten days. One was $25,000 above our market analysis and the other was $15,000 more. They declined both offers. This property will likely sell near our original valuation, but the seller simply hasn’t realized what’s going on in the market. It’s a normal part of the process.
If you’re thinking of selling, it’s always a great time to sell, but the property needs to be market-valued and you’ll need to be patient.
If you’re looking to buy, now’s the time to be on the safe side. Pay market prices and don’t take unnecessary risks. Prices will likely be flat or slightly down over the next year. I don’t see a 2007 crash anymore – the mortgage world isn’t like it was before 2007, and the US is underbuilt by millions of housing units. The lack of inventory will continue and there will not be a flood of distressed properties on the market as we saw in 2008-2012.
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