Houwzer's Market Outlook is based on the questions we continue to receive from clients, employees, and investors about the implications for the housing and mortgage markets in which we are active.
The mixed signals we saw in our previous housing Market Outlook have lined up in the last month, and are now pointing firmly towards a cooling housing market in all five of our markets.
While home prices are still up year-over-year across the board, they are no longer beating inflation in the DC and Philadelphia markets so real home prices in these markets (after taking inflation into account) have declined. In the Florida markets, the year-over-year appreciation has been so rapid it has outpaced the high inflation rates but there are other signs those markets are slowing.
Homes Under Contract: Down
The number of homes going under contract in June has gone down significantly in all markets (ranging from -7.44% year over year in the Tampa market to a whopping -25.25% in the DC market). This declining trend in the number of transactions has boosted inventory in all markets significantly.
Inventory: Up
Inventory increases range from around a 7% increase in the Philadelphia and Jacksonville markets, to a 20% increase in DC, and up to 55% and 56% increases in the Tampa and Orlando markets respectively. These percentages seem large because we are starting from a very low base (and inventory is still extremely low historically), but they are notable because there is a clear trend toward increasing inventory.
These kinds of trend reversals are relatively rare in the housing market and suggest a long march toward (at minimum) a less extreme seller’s market and potentially even a balanced or buyer’s market (though that will likely take years to unfold, given the glacial pace at which housing market trends tend to play out).
Why This Can be Good for Buyers: Shorting the Market
All of that may sound like bad news to homeowners and prospective buyers, but the high-inflation world we are living in requires us to analyze things a little further. If you recently borrowed a significant amount of money to purchase a home at a low-interest rate, or even if you were to do so today at around 5.7% (the current average 30-year fixed mortgage rate), those rates are still significantly lower than the inflation rate announced today of 9.1%.
This means that by borrowing dollars that have declined by 9.1% (at some interest rate less than that amount), you would have made an unrealized profit by successfully “shorting” the dollar - because the dollars you are paying back to lender are worth 9.1% less than the ones you borrowed (if you had borrowed a year ago).
It’s not often that consumers are on the winning end of a trade against banks, but that has been the case in the current mortgage market environment since inflation started picking up. It seems likely that mortgage rates will continue to stay lower than inflation for at least the short term, creating an advantageous situation for borrowers and home buyers even if it might not seem so based on non-inflation adjusted numbers.
If you think about the cost of borrowing as a spread between current inflation and current interest rates, it’s actually cheaper now in terms of cost of capital (5.7% - 9.1% = -3.4%, effectively 3.4% yield to you as the borrower because of the profit from successfully “shorting” the dollar) versus this time last year with 3.07% mortgage interest and 5.4% inflation (spread of -2.33%) when you take into account inflation.
This assumes that inflation persists over the next year, which nobody can predict but there’s no indication that current inflation levels will be resolved in the short term.
So we’re left with very high inflation for an indeterminate amount of time extending into the future, moderating home prices, and middle-of-the-road mortgage interest rates historically speaking (at least for the moment).
It doesn’t feel great because of the high inflation and the nominal home price appreciation, but if you are a prospective buyer this might actually be a somewhat advantageous time to think about buying a home - especially if you are in it for the long haul and not a quick flip.
Even though there are signals that the market is shifting, there is still a ton of demand relative to supply due to a housing supply shortage which puts significant upward pressure on prices even in spite of all the other headwinds.
Philadelphia Market
- Median Home Price: $365,000 (up 8.96% from June 2021)
- Average Sales Price to Original Price: 102.22% (vs. 101.16% in June 2021)
- Average Days on Market: 19 (vs. 20 in June 2021)
- Month’s Supply of Inventory: 1.5 months (up 7% vs. June 2021)
- Homes Under Contract: 6042 (down -14.35% vs. June 2021)
DC/Baltimore Market
- Median Home Price: $600,000 (up 6.19% from June 2021)
- Average Sales Price to Original Price: 101.50% (vs. 102.33% in June 2021)
- Average Days on Market: 15 (vs. 14 in June 2021)
- Month’s Supply of Inventory: 1.2 months (up 20% from 1.0 in June 2021)
- Homes Under Contract: 6319 (down -25.25% vs. June 2021)
Orlando Market
- Median Home Price: $411,400 (up 18.22% from June 2021)
- Average Sales Price to Original Price: 99.79% (vs. 99.3% in June 2021)
- Average Days on Market: 15 (vs. 18 in June 2021)
- Month’s Supply of Inventory: 1.4 months (up 56% from 0.9 in June 2021)
- Homes Under Contract: 2536 (down -20.48% vs. June 2021)
Tampa Market
- Median Home Price: $379,000 (up 26.38% from June 2021)
- Average Sales Price to Original Price: 99.73% (vs. 99.89% in June 2021)
- Average Days on Market: 16 (vs. 15 in June 2021)
- Month’s Supply of Inventory: 1.7 months (up from 55% from 1.1 in June 2021)
- Homes Under Contract: 5499 (down -7.44% vs. June 2021)
Jacksonville Market
- Median Home Price: $373,900 (up 22.62% from June 2021)
- Average Sales Price to Original Price: 99.46% (vs. 100.26% in June 2021)
- Average Days on Market: 28 (vs. 30 in June 2021)
- Month’s Supply of Inventory: 1.5 months (up 7% from 1.4 in June 2021)
- Homes Under Contract: 3258 (down -5.18% vs. June 2021)
