Will the real estate market collapse in 2022?
It’s not so much a sellers’ market anymore, but it’s still a sellers’ market. There isn’t much to buy, and there aren’t many people who can afford to buy it. I think the market will just crash. Inventory is incredibly low, and affordability is incredibly low as well.
I think this market is just going to crash. There will be very few sellers, very few buyers and very few shops. The market still works, but the number of people who can afford to participate in this market is just much smaller. The number of transactions will decrease and continue to decrease. The number of REALTORS will also decrease.
Let’s look at the inventory
Stock is slowly increasing in Sussex County, but the number of new homes listed in May 2022 is actually lower than May 2021. There just isn’t much for sale.
To give you perspective on the market, as of June 2022 there are approximately 1200 housing adverts in Sussex County, DE MLS. As of June 2018, there were over 4,100 housing ads in the Sussex County MLS. That’s a massive difference and a massive drop in inventory. The market in 2018 wasn’t bad. Inventory levels were already trending downwards at this point.
Interestingly, the number of closed units in 2022 was 561. In 2018 it was 535. The Sussex County market in 2018 was a healthy real estate market and sales were about the same in terms of total transactions.
Two big things have changed
First, inventory has gone down. From 2010 to 2020, the average monthly stock was 4,966. Inventory levels in May 2022 were down 75% from historical levels over the past decade. That is amazing.
Second, prices have gone up. The reality of real estate in Sussex County is that there is still a high demand for real estate. At the same time, inventories have been falling continuously for years while demand has remained constant. Simple economics will tell you that when demand is high and supply is tight, prices will rise. That is exactly what happened. Prices have risen sharply in recent years.
Interest rates have basically doubled in 2022. In my 20 years in real estate, I’ve never seen interest rates rise so quickly. This has a dramatic impact on the market. First, the number of buyers is shrinking. People who are interest dependent can’t buy as much house. Some of these people just won’t buy — and so the number of buyers will continue to shrink as interest rates rise. Secondly, most sellers are also buyers as they are selling one property in order to acquire another. Some of these people just don’t sell because they’ve lost purchasing power due to interest rates. Rising prices generally don’t deter this group of buyers – they’ll have no problem selling high and buying high. The problem is when they can’t buy big because interest rates are so much higher than they were six months ago. My theory is that inventory will remain low. People just stay where they are. The market will slow down.
So where do we go from here?
This is still a seller’s market, but the days of price increases are largely over. We recently listed a home for $50,000 more than our market analysis. They received two offers in the first ten days. One was $25,000 above our market analysis and the other was $15,000 above. They rejected both offers. This property is likely to sell close to our original valuation, but the seller just didn’t realize what was going on in the market. This is a normal part of the process.
If you want to sell it’s still a good time to sell, but the property has to match the market price and you have to be patient.
If you’re looking to buy, this is a time to be careful. Pay market prices and do not take unnecessary risks. Prices are likely to remain flat or fall slightly next year. I don’t see a 2007 crash ever again — the mortgage world isn’t what it was before 2007, and the United States is underbuilt with millions of housing units. Inventory shortages will continue and there will not be a flood of distressed properties coming onto the market like we saw in 2008-2012.
We are here and ready to work for you.
Call Deniene at 302-236-9092
Sunrise office phone: 302-313-9949