Months Supply of Inventory is a long-used gauge of market performance and condition. The long-standing rule of thumb is that if there are five months or more of market inventory, we have a buyer's market. If there are less than five months, it is a seller's market. In recent years, we have been solidly in the realm of a seller's market. Recently, we've seen a change in the statistic that may or may not be relevant. Specifically, we've seen month's supply of inventory increase. Normally, we expect fluctuations but we are coming off a period of constant reductions for some time. This recent increase has people concerned about the market as a whole.
This year, in order to get inflation under control, the Federal Reserve has been raising interest rates. To consider that in context, we have had the lowest Fed Funds rate in history for several years in a row in order to stimulate the economy during the COVID pandemic. These increases have to be expected. However, they will affect the housing market more directly than many other items. You may purchase groceries or gas on your credit card but that is a totally different experience from applying for a mortgage to buy a new house. Higher interest rates at the Fed level will eventually be factored into the return on T-Bills which will also effect the mortgage interest rate. As a result, there is a decrease in demand in the housing market.
When the Mortgage Rate increases, it reduces the purchasing power of potential buyers. The amount of money they can borrow for the same monthly payments decreases. That means fewer homes are in their price range. As a result, demand for homes decreases.
If you are a Buyer, this may or may not be a bad thing. If you have access to cash, your purchasing power actually increases in comparison to those who are financing. Whether you are financing or not, it will remove some people from the market and allow you more flexibility to go and look at properties and determine which is better for you. The likelihood of bidding wars and offers that are sight-unseen will actually decrease. We can help you to find the best possible fit more so than we could have a year ago.
For Sellers, this means that there are more properties on the market. The chances of having that offer come in on day one of the listing are declining. However, if five months of inventory is a buyer's market. Note that we have moved from less than one month to just over two! That still puts you in the driver's seat in many ways. Now is a good time to sell.
Anyone who tells you where we will be in five years, or even one, is guessing. There are economists who predict that we will see continued increases, and there are others who predict gloom and doom. The Fed Chair, Jerome Powell, has stated that he is looking for a "soft landing." By that, he means a return to a more normal environment. However, if you've watched the housing market since 2002, it is very difficult to determine exactly what that means. Truly, it is anyone's guess. However, with uncertainty there is opportunity.
The answer is simple. Find a real estate professional that you trust who works with a strong company and strong management. You want to make sure that you are not only getting strong representation from your agent but also that they have local, knowledgeable managers who can help guide you through the process. The market is still strong but is going through an adjustment. You want to have the best possible team on your side moving forward. You wouldn't work with a financial advisor who didn't follow the market or an accountant who doesn't stay abreast of the new IRS rules and regulations. Make sure you have a team working for you.