It's officially summertime in Central Ohio, which means baseball games, backyard barbecues, and wicked-high interest rates. For anyone who hasn't been following the news lately, the Federal Reserve has been ratcheting up rates for a few months in order to fight rising inflation. This culminated in a 0.75% hike last week, the highest since Joe Diffie was rockin' the country airwaves. For context, that was circa 1994.
With most 30-year mortgage rates now over 6%, buyers can no longer afford quite as much home as they could 6 months ago. In practical terms, the monthly payment on a $300,000 house just went up by $400.
So what does this mean for the real estate market here in Columbus? As I've mentioned before, home inventory is incredibly low, an issue that seems unlikely to go away anytime soon due to labor shortages and supply chain constraints. This puts us in a unique position where price is lowering demand, but supply is pushing price right back to where it was...kind of.
Looking at May versus April 2022, all of the key metrics are still moving in the right direction, but at a slower pace than before. Month over month, the number of homes sold increased by 455, price per square foot increased by $6.73, and days on market dropped by 2. Perhaps the only thing that moved in the wrong direction was the sale to list price ratio which dropped slightly from 104.9% to 104.6%. That's good right?
Well, May is historically the best month for real estate, so to some extent, we'd expect to see these month over month increases. If we dig a little deeper, we can see that the April to May increases in 2022, while strong, were ever-so-slightly lower on a percentage basis than the respective 2021 increases. This means that even though things are still moving up, the speed in which we're moving is slowing down.
For now, inventory remains incredibly low, so even though interest rates have impacted demand, most sellers can still expect to receive multiple offers, but perhaps a smaller number of offers than they would have a few months ago. Keep in mind the rise in interest rates is still fairly recent, so buyers who have been in the market for some time are accustomed to making extremely high bids. As the market cools, I suspect the offers will as well. In addition, many lenders offer 90-day rate locks, which means there's often a lag between rate hikes and market impact.
For those waiting for a real estate market crash, I hate to burst your bubble (no pun intended), but that's likely not going to happen anytime soon. As I mentioned before, inventory is at an all-time low. People need a place to live and there simply aren't enough homes available. Also, home equity is at an all-time high, meaning home prices would have to decrease significantly in order to trigger a foreclosure selloff. Last but not least, inflation, while excessive, is actually keeping home prices afloat. As high as interest rates are, inflation is still higher - for now. Short of a collapse in the US dollar, a Russian invasion of a NATO member, or a complete breakdown of the US democracy, a housing bubble burst is highly, highly unlikely.
Now, I fully admit that the likelihood of any of the aforementioned doomsday scenarios is relatively high, at least compared to a few years ago. However, if one of them comes to fruition, I think we all have bigger things to worry about. So in the meantime, just embrace this wild market for what it is. And, until next time, stay classy Columbus.