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Part 4 of 4 - "Market Breakdown and economic trends."

If History repeats itself and Real Estate cycles are any indicator of where we're going, to look at an Annual Home Appreciation timeline is a good place to start when trying to take an educated guess on what the next Cycle will look like. Note that from the beginning of the early 2000's Real Estate Boom, there were 7 Years where Prices were above the 4% Trend Line before they leveled off and dropped down significantly below the trend line. We're only in Year 2 of this Upward Trend. But why, when the market seems to be cooling off as fast as it heated up, would I suggest that the Real Estate market of the last 2 years isn’t likely to change as significantly as people seem to think - at least for our LOCAL market? Gary Keller, Tech guru and Founder of KWRI, did a "State of the Industry" update in June and very eloquently noted that Real Estate is like a storehouse of value. There's no other product that represents more commodities than Real Estate and it represents the overall Inflationary tug. From the Land itself, to dirt, cement, asphalt, aluminum, copper... you name it... even the computer chips that go into today's Smart houses." One of the many compounded effects of 2020's Covid shut downs, were the supply chain shortages which have continued to keep the prices of the many commodities needed to build homes at substantially Higher than normal prices. And with no clear end in sight to this dilemma, costs of materials are likely to stay significantly higher than we've been used to. But even that has not stopped what has been the fastest and sharpest Real Estate boom in American history. There is another notable reason why Prices are likely to remain stable in our Beach market. Very simply put: CASH. The ratio of Cash Sales for Ocean City in 2021 versus Sales that involved Financing of some kind, was 40/60. By comparison to a metropolitan area like Baltimore saw only about 19% of Homes purchased with Cash. That number in Ocean City for 2022 is already up over 43% YTD. So, while the Federal Government IS raising interest rates to slow the rate of Inflation, which WILL eventually slow the number of Sales per year, which will then bring higher inventory and subsequently more balanced prices, a couple of very interesting Parallel points were made by Lawrence Yun - the Chief Economist for NAR in his latest economic Housing Update: Lawrence notes: "With less demand and more housing starts, existing-home sale prices are also expected to grow at a slower rate of 4.4 percent in 2022." Additionally Lawrence said: “In just the last year, increasing home prices have translated into a substantial wealth gain of $45,000 for a typical homeowner. These gains are expected to moderate to around $10,000 to $20,000 over the next year.” Did you pick up on that? He didn't say he projected that Higher Inventory and Higher Interest Rates are going to translate into LOWER Prices. He said it's expected to translate to a smaller, but still Positive YoY appreciation. So, if the YoY Average Home Value appreciation was 19.4% in 2021, he's projecting that it will be closer to a 5%-10% Appreciation over the next year. So, in Summary, based on the economic trends I'm following for our Local Markets, the ramifications of any Real Estate-related recession we may see, are likely to be limited to: - An End to the limitless Multiple Offer Scenario market, - Seeing a more Balanced Market with Higher Listing Inventory which will allow for moderate room for Negotiation - AND - Higher interest rates - possibly up to 10% - which IS going to affect Affordability for the 60% of our Buyer Pool who require Financing. - BUT prepare yourself when it comes to Pricing because I think there's good reason to believe THESE Prices are the new norm for the next few years. I'll be monitoring the market closely and will be posting more Market Update videos to keep you in the loop!