You might expect that given the new reality of $5 a gallon gas and 5.75% conventional mortgage rates that home sales would slow down. You would be right but possibly for the wrong reason. Home sales were down in the Chicago area by -11.4% year over year because inventory is at historic lows. In April of 2012 there were 62,094 homes for sale compared to 14,309 today. The median days on market is 9 days and the average price is up 6.9%. Sales are happening fast and buyers seem unphased.
Talk of a housing bubble is scary and gets a lot of attention. But the reality is probably a lot less scary. Some news stories point to higher interest rates. Mortgage interest rates are up, but according to The Mortgage Reports the average conventional mortgage interest rate since 1971 is 7.78%. At the height of the last market boom in 2006, for example, conventional mortgage rates were at 6.6%. Because banking regulations became stricter since 2008 under the Dodd-Frank Act banks are not facing the tsunami of bad loans they did then. The average homeowner also has $185,000 in equity, so even if prices decreased the vast majority of homeowners have a significant cushion of home value to fall back on.
Traditionally, employment the key to the housing market and the numbers are good. According to the Bureau of Labor Statistics, in March of 2022 the Chicago area generated 52,800 jobs and unemployment in the Chicago area is at a historical low of 4.5% and nationally at 3.6%. Consumer spending continues to be strong and corporate profits are at 50-year highs. Economic conditions remain strong.
Inflation is a real problem and the Fed is trying to get control of it by increasing interest rates and cutting back on asset purchases. This makes the stock market wonky. When interest rates go up, it becomes more attractive for investors to move their money into bonds and out of stocks, and that causes stocks to fall. But the jury is still out on an economic slowdown. Mark Zandi, Economist at Moody Analytics, expects the housing market to moderate in the next few years but does not foresee a crash.
Never before has it been so important to have a professional on your side when buying or selling real estate. If you are thinking of buying or selling contact us for a complimentary analysis of your real estate needs and goals.