July 2022 Housing Market Update | Recession And Interest Rate Fears

Welcome to the July 2022 edition of the monthly housing market report. In this edition, we will first cover the fears of mortgage rate hikes and the looming fears of a recession. We will then wrap it up with some national data concerning housing inventory, appreciation rates, and some local San Antonio housing outlooks as well.

Mortgage Rates And Recessions

In the first chart above you will notice each recession from 1980-2020 coincides with a period of rising interest rates. This rise in interest rate is the result of Fed efforts in the markets to bring down inflation. Here below is a different format of the information above.

The bad news in each case is that raising interest rates is always the Fed’s cure for high inflation. So, for those home borrowers in a position to buy and in no major threat from inflation the cure will eat into your buying power immediately.

And for those well-qualified buyers at the lower end of the price range home ownership may become impossible until rates come back down or higher sources of income are established.

How is the housing market reacting to higher interest rates?

So, how is the housing market reacting to these higher interest rates? First and foremost we are seeing nationwide fewer offers received as home buyer budgets are being slashed or plans sidelined altogether.

Second, the wild over-asking price bidding is fading away quickly. Now you can only really expect over asking for well-priced and turn key homes.

Third, overall home sales have pulled back to pre-pandemic levels. Which by the way is still considered a strong seller’s market.

And finally, inventory levels have returned to pre-pandemic levels. Again, this level is also still considered a strong seller’s market.

What do experts have to say about housing inventory?

Nationally Mark Fleming says “There has been a pickup in inventory that we’ve seen recently, but it’s not from a big increase in new listings… but rather a slowdown in the pace of sales. And remember that months’ supply measures the inventory of sales relative to the pace of sales. Same inventory, fewer sales, means more months’ supply.

Inventory of homes for sale

Some good news for home buyers to grab on to is that inventory levels have been steadily rising since January nationwide. At the beginning of the year, we averaged a little over six weeks’ worth of inventory as interest rates began climbing. Up to May hit two and half months’ worth of inventory on average.

The bad news for sellers is obvious; more competition between sellers and fewer buyers to choose from.

San Antonio Housing Inventory

Locally here in San Antonio our housing inventory is still close to record lows. As you can see from above San Antonio was below 3 months’ worth of inventory pre-pandemic since at least 2017. Fast forward to covid times and the great acceleration of migration to our area and we have nose-dived below six weeks worth of inventory.

Have increased interest rates impacted San Antonio? Absolutely, but not enough to bring the inventory levels up to pre-pandemic levels just yet.

Estimated Home Price Performance

Now with rising interest rates and new home listings in mind, one could easily conclude there is a crash right around the corner. But the reality is that our current overall housing shortage is drastically too large to completely crash the market at this time.

In the graph above you will notice that experts still project 2022 to end with an overall higher positive appreciation nationwide of 9.3%. The following year 2023 4.19%, 2024 3.12%, 2025 3.46% and 4% in 2026.

Will San Antonio keep growing in housing price costs?

Locally here in San Antonio housing costs have been skyrocketing for years as new residents move in from out of state to enjoy our warmer climate, lower taxes, and lower cost of living. Unfortunately for many longtime residents, this means higher payments when they decide to move.

My guess is that home prices in the long run will continue to climb here. Just recently our city approved by vote over 1 billion in new investments. Those investments will improve streets, parks, recreation, open spaces, drainage, facilities, and housing.

These are all good things but will surely help attract more new residents to the city over the years and help drive home value even higher as land becomes more scarce in the city.

Are you thinking of making a move? Contact me.

Krishna Perkins