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A Look Ahead to the Q4 2022 Housing Market

The future is not certain but it is predictable. The supply and demand of active listing inventory is the biggest story in the real estate market—and potentially for the foreseeable future.

Predicting markets has long been a hobby for some—a very profitable one at that. One of these markets—the real estate market—is causing many to scratch their heads now more than ever. The housing sector is really struggling to figure out where it is heading: Active listings were up until they weren’t, new listings are falling, and prices? Well, appreciation is still up by double-digits. reports active listings remained up year-over-year by 27 percent, yet new listings are down 13 percent, and the median home price is up 12.7 percent. When there’s more inventory than buyer demand, home prices should start coming down but that’s not what we’re seeing even when 40.1 percent of all homes are going for under asking. The issue with inventory is making the numbers even more perplexing.

We have not built to keep up with buyer demand in over eight years. In fact, inventory has been going down since 2014—long before the current market instability. Once the pandemic hit, this issue was compounded by supply chain disturbances and inflation. Builders paused business and then picked up again when interest rates were low and built out even bigger. Now that interest rates are rising, many buyers pulled out of their contracts and builders are left holding homes that they must resell causing 24 percent of them to reduce home prices and/or add incentives.

House starts unexpectedly jumped 12.2 percent in August but housing permits were down 10 percent in the same period. Millennials and Gen Zers are now dominating the housing market—with millennials making up 43 percent of current homebuyers. Figure that with the fact that a recent study confirmed that home buying is still a sign of stability: 65 percent of millennials said that homeownership is the top sign of success. It doesn’t take a degree in economics to see that all these factors combine to show that we simply do not have the inventory to keep up with the demand for millennials and Gen Z homebuyers.

Look Ahead to Q4: What Can Buyers Expect?

What we’re seeing as of late is the “must move” rather than the “want to move”. I need to move because I got a job transfer or I need to move because I did work remote, but now they’re calling us back. This will keep homes selling through the end of year, all while our active inventory is already tapering off.

Active inventory usually crests in October but peaked in July this year. Usually, once we crest, we work off the active inventory. But if we don’t get new listings and we already don’t have enough to meet demand, we could be setting ourselves up for an intense seller’s market for the Spring. Couple that with the Fed pushing us “painfully” into a recession, the market could shift again in favor of sellers.

The big question mark right now is not if the Fed will keep raising interest rates but by how much. They have three meetings remaining for 2022 (September, November, and December). The Fed has left a “soft landing” behind and acknowledged “pain” for both households and businesses. This pain is coming at the expense of controlling inflation. We have recovered all the jobs that were lost from the pandemic and more with an additional 315,000 jobs added in August. To which, the Fed has now become a single mandate agency, leaving the worry of employment behind and solely focusing on inflation. The market’s expectation of the Fed’s hanging onto higher interest rates for longer has bond yields hitting, jumping to 3.51 percent, their highest level since 2011.

So, when will we be in a recession? I do not think we are there yet, but I initially thought it was coming in 2023. However, if builder confidence continues to drop, consumer confidence turns back around for the worse and we all finally stop spending, the fourth quarter might be the start of what we’ve been talking about all year, a recession. My biggest fear is that the recession slows the economy enough that rates drop in Spring with the increased seasonality of homebuying and inventory, but still not enough to satisfy demand. The refrain that I think we’re going to keep hearing over and over is buyers need more houses than we have currently available across the country.

Now Knowing What to Expect, What do Potential Homeowners Need to Keep an Eye Out For?

The impending recession and economic slowdown leave many homeowners with fear: Is my job secure? Should I buy or sell right now or hold tight? And am I losing value in my home?

They’re losing money from their expectations, not their value. But as potential buyers see price reductions, they’re going to be inclined to continue to wait for a deal. The problem is that once we see interest rates lower again—which we all know is cyclical—then demand will pick up again and we’ll be back to multiple bids and prices over asking.

It’s human nature to want to buy on the dips in the market, but potential buyers need to look at their opportunity cost. They are missing out on modest appreciations and delaying big life decisions—is it worth waiting to renovate or start a family or buy for the first time, just to save a few bucks on a home price?

Ultimately, realizing that housing will always have ups and downs in cycles is important to reassure homeowners. No matter what, homeownership is still a good investment because property continues to appreciate during recessionary periods.

The Future is Not Certain but It is Predictable

The supply and demand of active listing inventory is the biggest story in the real estate market—and potentially for the foreseeable future. It is not going to be solved quickly. We have 94 percent more inventory than we did in 2021, but we still 26 percent lower than 2019. If we don’t start seeing more listings and our active listings continue to get eaten up, it’s going to make for an interest Spring—which is traditionally a busy buying season. If we can’t break above the 2019 mark before we start trailing off on our inventory, which is highly unlikely at this point, we will be a position for a possible rally and future acceleration of appreciation—which creates an even more unaffordable environment for buyers.

Nicole Rueth