This Housing Market is Not a Bubble?

As real estate prices have continued to have double-digit appreciation throughout Q1 and Q2, the talk of a “housing bubble” or market shift seems to be a hot topic amongst many media outlets and industry professionals. Yes, the housing market was thrust into hyperdrive over the past year due to historically low interest rates, but as the Federal Reserve is actively raising rates to fight inflation, the Madison area market continues to be a strong seller's market. As more housing inventory becomes available with the weather warming up, buyers will find more opportunities to get under contract as well.

However, overall affordability has decreased. Buyers today have significantly less purchasing power than they did 6 months ago, and some buyers are feeling this blow and deciding to take a step back and see what happens with interest rates and competition in the upcoming months, hoping for a break. Though even with rising interest rates, some 2 points higher than 6 months ago, the greater Madison area continues to see high demand, with most listings still selling for well over asking price with multiple offers, at all price points, even luxury listings $1,000,000+.

While we have seen a shift in the overall buyer activity, likely due to affordability being stifled due to those rising rates, the buyers that remain in the market are the most qualified and motivated buyers who are still writing offers that are extremely competitive and clean. For example, for a $400,000 home in quarter 1, we saw buyers flocking to these listings with record amounts of showing activity and offers for the sellers to review – resulting in 15 minute showing windows and transactions closing with few contingencies and significantly higher over asking price (15-25% or more, on average).

Now in the second half of Q2, we are starting to see the overall buyer activity decrease, which has given buyers some breathing room to get into a home without back-to-back to back showings. Though, the same house that was worth $400,000 in Q1 would now likely be priced around $450k, and there are fewer buyers who can afford that higher monthly purchase price on top of the higher interest rates. Buyers can expect to compete with fewer offers on listings due to the slight increases to inventory, but that doesn’t mean those offers are any less competitive. The demand to be a homeowner in the Madison area is still significant, especially as rents are continuing to increase each year as well.

Interest rates will continue to make a large difference as to what happens with demand and prices moving forward. Overall, we expect prices to continue to increase for the short and long-term because looking at the big picture of our market, we are still hundreds of thousands of inventory units short, and builders cannot keep up with the new construction demand. We expect the older generations to continue to age at home, holding on to a significant number of homes that would otherwise be turned over to today’s home buyers.

That said, the market is due for a correction, and we expect home value appreciation to increase year over year at a more reasonable rate moving forward – double digit appreciation isn’t sustainable, though it has certainly put many current homeowners into very favorable equity positions. We are hopeful that with some slight pressure on interest rates and more inventory this summer, we will see prices increase at a more modest level.

Today’s real estate market is extremely complex; please reach out if you’d like to talk more about how this impacts you or your future housing goals.

Posted by Alison Crim on
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