We pass by this pasture not too far from our house a couple times a week. Parked in it, are maybe a 100 or so (or more) full-sized pick-up trucks. It’s really a weird sight. But it reminds us of a conversation we had with a client a while ago. He’s buying up extra inventory because every time he orders, the price is higher. We went into his store a couple weeks ago. He has boxes everywhere. Likewise, we’ve sold multiple homes in the past year where the owners are not immediately buying another. Multiple. Just this week, we talked with a couple who is waiting to buy until “prices go down.” Does this behavior seem “normal” to you? What are all these people doing? Are they seeing signs of a market correction?

Inventory. In real estate, we hear anecdotally that inventory is at record lows, but we recently listened in to our local Board of Commissioners meeting. Permits for new construction are outpacing last year by 25% already. In a small county where about 100 permits might be normal for a quarter, 25 more homes are a big deal. On the surface, increasing inventory sounds like a pleasant remedy to the intense sellers’ market helping prices rise. But a little publicized aspect of the housing industry is that it usually lags behind the regular economy about 3-6 months. If you’ve been around a while, you’ve seen it before: Just as builders catch-up with demand, demand cools.

Interest Rates. This last week we saw headlines that interest rates hit a 10-year high. Doesn’t that sound like something horrible? Look a little deeper. We’ve experienced the lowest interest rates ever over the last few years, and they’ve been held artificially low. If you’re looking at rising interest rates, let’s put them into perspective. We bought our first house 30 years ago. The rate was about 6.25%. We didn’t balk at it all. Why do you want to watch interest rates? Rising rates can erode your buying power because they directly impact your monthly payment. Be on the look out for those 40-year mortgage products to help with payments if rates continue to hold at their upward trend.

Inflation. We don’t want to be political here, but the influx of cash through all types of stimulus payments and even loan forbearance was bound to cause rising prices. It’s common sense in the American economy. The more we have to spend, the more we spend. More spending in the overall economy, especially combined with supply issues, lead to inflation. What’s going to stop it? The basic economic cycle. A capitalistic economy is cyclical. Recessions are the response to out-of-control expansion. What we don’t know is it will be sudden or a gradual slow. At any case, history dictates that in general prices will not recede but stagnate or slow.

We would never leave you with a sense of hopelessness for what’s to come. Our hope is in something bigger than our economy. What we can give you is a challenge for how to respond. One, do not time the market. If someone calls you to inform you, “It’s a great time to sell,” when you’ve had no plan to move, run the other way. Make your real estate decisions with purpose because they fit your long-term goals. Two, if you are already looking to buy or sell in the next year or two, be diligent in watching market indicators. We have several sellers right now who have us run a market analysis for their home every few months. We’re watching for changes in sold values that will impact their selling plans. Three, understand housing prices are not likely to recede without a major economic or political event. Most experts agree, delaying to buy is going to erode your buying power and make you pay more long-term. The key element in this scenario is “if you are ready.” If you are not ready to buy but want to short-term, devote yourself to saving for your down payment and closing costs, clear up your credit, and start working with a lender. Have your financials ready for when you are prepared to buy.

The overarching principle in responding to uncertainly in the economy is discipline. Reacting out of fear rarely is beneficial in the long-run. Instead, be meticulous with your economic choices. Talk with professionals. Work your plan.

--William & Alison

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