Tax Day and A Healthier Market

Tax Day and A Healthier Market

The spring real estate market coincides with the arrival of Tax Day and I am looking forward to a healthier market!

Inflation has been driving prices of everything plus interest rates upward, and The Federal Reserve (Fed) is fighting it with resolve. The rapid increase in interest rates has impacted all investment categories including residential real estate.

Inflation seems to have peaked around 9% in June ’22. We have seen a steady decline to sub-7% inflation in December ‘22. By the time we reach Tax Day, we’ll be nine months post-peak and the forward indicators of inflation for June ’23 should be clear to all. The graph below illustrates inflation trending downward with the last reading in December 2022.

Consumer Price Index For All Urban Consumers

It seems to be a game of ‘units vs. price’. Reviewing markets around the U.S., we are experiencing a slow-down in the velocity of real estate caused by:

  • Rapid rise of inflation & interest rates
  • Sellers’ & buyers’ pausing in the market, seemingly waiting for corrections to inflation and interest rates
  • The return of the cyclical nature of our industry for the first time since Q4 ’19

The National Association of Realtors’ (NAR) Chief Economist, Lawrence Yun’s gave a recent presentation and it suggests that US housing fundamentals remain solid. Taking a look at the numbers, it makes sense that we are not heading towards a catastrophic crash.

Slide from 2022 National Association of Realtors Forecast

Jumbo mortgage rates peaked briefly, above 7% in November ’22 and are flirting with falling below 6% as of this writing. Jumbo mortgage rates starting with a five (5%) remain historically low.

The 30-Year Fixed Rate Jumbo Mortgage Index is now at 6.1%, down from a 7% high.
Source: Optimal Blue

This outlook as of April ’23 to the peak inflation anniversary of June ’23 coincides with our traditional spring selling season. By April 15th, the best we can hope for is that the velocity of the U.S. housing market will return to a seasonally adjusted rate of above 5 million homes. A respectable, if not, healthy market, but certainly not 2020 or 2021.

A huge thank you to Mark McLaughlin, of McLaughlin Ventures III, for this inspiring piece.

Comments are closed.