Market Fundamentals Favor Home-Sellers: Homebuyers Getting Priced Out
It’s a Seller’s Market Not a Bubble
Yes, you heard me correctly. If you are a homeowner living in the MetroWest region of Massachusetts and you are thinking about selling your home – NOW is still a great time to SELL.
Note it’s important that the reader understand that real estate prices and market conditions may vary by location (e.g., town, neighborhood, street, or association) and that the aforementioned market commentary represents Team Coyle’s general view of the real estate market in the MetroWest region of Massachusetts.
Moreover, contrary to some media reports – there is no housing bubble. Note a financial bubble occurs when price levels for a particular asset (real estate in this example) are predicated on irrational exuberance (i.e., a hope and a wish) instead of that asset’s underlying fundamentals.
In the MetroWest region, single-family home prices primarily reflect the significant supply-demand imbalance between homebuyers and sellers. This is evident by the region’s available inventory of homes for sale versus the current sales rate of homes which is at a historic low of one month (see chart following). Note the region’s months’ supply of inventory has been in the one-to-two-month range for almost two years.
Months’ Supply of Inventory (MSI)** | MetroWest, MA*
Affordability is Forcing Homebuyers to Exit or Lower Expectations
In our April Newsletter, we talked about how the rising cost of buying and owning a home (i.e., the affordability issue) was causing some homebuyers to 1) revise/lower their original expectations (i.e., home price range, type, size, and location) or 2) exit the market entirely.
“The affordability issue primarily affects first time home buyers. – Team Coyle
In the month of May, affordability remains a key issue and an issue that is unlikely to change in the foreseeable future as unusually low inventory levels and inflationary pressures continue to drive home prices and financing even higher. As a result, there has been a noticeable decline in the level of foot traffic at open houses and the number of offers per home but certainly not enough to materially alter the negotiating position of the seller over the homebuyer.
Outlook for Single-Family Home Price Growth
As respects the second half of 2022, we renew our guidance (First Inflation, Now Higher Interest Rates) that home price growth (see Chart following) will continue to increase but at a decreasing rate. Our forecast is predicated on two main assumptions: 1) that the current supply-demand imbalance in housing remains near current levels and 2) the pool of eligible homebuyers gradually declines as more homebuyers get priced out of the market.
“We expect home price growth to increase at a decreasing rate for the remainder of 2022.” – Team Coyle
Median Sales Price (YTD May 2022)** | MetroWest, MA*
The U.S. Federal Reserve | Recent Actions
The Federal Open Market Committee (FOMC) met today and raised its key policy rate by another 75 basis points. Unfortunately, today’s action came as no surprise. Indeed, the Federal Reserve’s efforts to control inflation are too little and too late. Inflation (see May 2022 Inflation Report by BLS) is already running rampant and is here to stay at least for the foreseeable future.
“Raising interest rates is a cure for the disease inflation” – Team Coyle
We do, however, acknowledge that the FOMC is between a rock and a hard place as they try to fight inflation without starting a recession. The latter – a recession – in our opinion is a foregone conclusion. The question is how bad (magnitude and duration) that recession will be.
Note as the FOMC pursues its hawkish interest rate policy throughout the remainder of the year, we expect consumers, due to affordability issues, to reduce the amount of goods and services they purchase. In turn, we expect employers to reduce employee headcounts as existing production levels far exceed anticipated demand. This of course will lead to a higher level of unemployment throughout the economy which in turn will fuel the approaching recession. We will of course continue to monitor the situation and provide you with timely updates at Team Coyle’s BLOG.
Disclaimer: The views and opinions expressed in this commentary reflect Team Coyle’s beliefs and observations as of the date of publication. Team Coyle undertakes no responsibility to advise you of any changes in the views expressed herein. No representations are made as to the accuracy of such observations and assumptions and there can be no assurances that actual events will not differ materially from those assumed. The forward-looking statements in this paper are based on Team Coyle’s current expectations, estimates, forecasts and projections, and are not guarantees of future performance. Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment advice. ** Data Source: MLSPIN, Domus Analytics 2022.
About Team Coyle @ Compass
Team Coyle is a professional group of real estate agents at Compass with more than ten years of experience helping individuals and families buy and sell real estate in Massachusetts (primarily in the Metro West region).
