Are My Worst Fears Coming True? Housing Update The housing markets and stock markets are changing. To fully understand exactly what is going on in the housing market it is necessary to take a step back and understand what is going on from a macro perspective in the U.S. COVID shocked the world as we know and caused serious supply chain issues in everything from toilet paper to new construction homes to computer chips for cars. This was further exacerbated by the conflict between Ukraine and Russia earlier this year which caused exports of everything from wheat to oil to grind to a halt to the U.S. So just as we were beginning to see inventory levels build up in the first quarter due to supply chain constraints easing, we got hit hard with rising oil and food costs due to this new conflict. During COVID we saw employers around the country have to substantially increase wages to entice Americans to come back to work. Well, what happens when you have raised materials costs (due to COVID supply issues) combined with rising wages being paid to employees making or providing the goods??? Well, you get the highest inflation levels in over 40 years with inflation hitting 8.5% in March and then 8.3% in April. The reading for April dropped slightly, however, this was not due to lowering housing costs or food costs but rather a drop in used car sales and a few other non-necessities. This caused an even greater sell-off in the crypto and stock markets. We are officially in a bear market in the NASDAQ and the S&P500 is likely to be declared officially in a bear market within the next month (a loss of 20% of its value in a year). The rising costs of consumer goods have led to America opening a record of 221 million new credit cards within the first 3 months of the year. Mortgage interest rates have almost doubled in the last 6 months with the average 30-year fixed mortgage hovering around 5.5%. So with all this external pressure between a falling stock market, and major misses on expected earnings from both Walmart and Target this week (due to overstocking inventories of higher-end goods and increased wages to their employees) where does this leave housing? Well… here is exactly what is going to happen in my opinion over the next few months. We are going to see housing markets behave like polar opposites of one another based on the metro they are located in. We are seeing inventory levels rise and price drops starting to accelerate in markets like Seattle, San Francisco, Boise and Austin. Housing markets that have lots of land and lots of new construction going up will likely see a drop in home values from the peak we saw in April 2022 by about 10% over the next 12 months in my opinion. These areas are most at risk due to their economies being very exposed to either the tech sector or overbuilding of new construction homes in a migration market that is fading. Inventory is up about 70% from last year in Boise, Idaho. However please remember there was a SIGNIFICANT shortage of homes last year in this market and we are still far away from a buyers' market. Markets that are experiencing high layoffs in the tech sector (Seattle & San Francisco) will see home prices slow down and fall slightly over the next 12 months as over 55% of the publicly traded companies in these two markets lost money last year, and stock prices are falling as much as 70% (Netflix & Robinhood for example). Now housing markets like the below are still seeing massive declines in inventory. Most of the cities below have 30% less inventory than 12 months ago and nearly 60% less inventory than 24 months ago. The markets below are going to continue to see steady price appreciation. If last year’s price was like a car traveling down the highway at 80mph, today it is traveling at 40mph. If driving in reverse is the same as home prices falling in this analogy, I do not expect any of the markets below to see price declines in the next 12 to 24 months. Now of course if homes are priced above the market or are at the high end of the market that would be a different story. What I am referring to is homes priced slightly below or slightly above the average-priced home in that market. Investing in these markets is going to continue to prove as an excellent hedge against inflation. My HOT Housing Markets Are: Tampa, Dallas, Denver/Boulder, Boston, San Diego, Chicago, Orange County, Nashville, Orlando, Palm Springs, Houston, El Paso, Miami, Atlanta, Ann Arbor, Virginia Beach, Charlotte, Raleigh, Myrtle Beach, Charleston, Greenville, Fayetteville AR, Colorado Springs, Columbia, Daphne AL and New Jersey Bergen County) Remember even with homeowners purchasing a home with a 5.5% interest rate or higher today, in each of the Fed's past rate hike missions they have successfully put our economy into a recession. Once a recession is official they always reverse course and mortgage rates fall. I personally expect the 30-year fixed mortgage to peak around 5.75% this year for a primary home purchase with good credit (about .25% higher than today), but expect rates to be in the mid-4%s by the middle of next summer. Making it a great refinance opportunity for anyone looking to purchase a home today. It is very important to remember that significant underbuilding took place between 2008-2020 in America. We are short approximately 6 million homes in the U.S. and with homeowners staying in their homes longer than ever not wanting to get rid of their low 2% and 3% rates we will see a substantial increase in the number of renters. Rents will continue to rise as we simply cannot build our way out of a problem in 18 months that we created over the last 12 years of underbuilding in many markets across the U.S. Areas like San Diego, Orange County, Charleston, Raleigh, Houston, Denver, Chicago, Boston, Charlotte have such a shortage of homes it will take years to get back to normal. Now, I expect prices to soften in about 40% of the markets in the U.S., prices to hold or with minor change in about 40% of the markets in the U.S. and then the other 20% will continue to see 7% to 15% appreciation over the next two years. 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