Is today’s uncertain market causing your buyers to have cold feet? We’ve seen many buyers excitedly jump into the market only to have their hopes dashed and quietly slink right back out after facing bidding wars, rising interest rates, and low inventory.
Buying a house is a financial decision, but it’s also emotional. To help you ease your buyers’ doubts, let’s dig into their five deepest fears about today’s real estate market and how you can help overcome them.
Understanding How a Recession Would Affect Your Market
Veteran agent Sean Moudry sat down with three-time Crystal Ball Award-winning real estate forecaster Barry Habib to get his take on what’s happening in the market and what to expect in the near future. Barry shared some great insights that can help you when talking to your buyers.
If you want to check out the entire podcast with Sean, watch it here (or below). But if you’re short on time, we distilled Barry’s main takeaways in this article so that you can confidently answer your buyers’ fears and concerns.
(And a special thanks to our Season Two podcast sponsor, Elevate by Elm Street.)
Top 5 Buyers’ Fears & How to Overcome Them
1. Is There a Housing Bubble?
No, there is no bubble … yet. And the current conditions are certainly different from what we saw during the housing bubble of 2007 and 2008. If you look at the types of mortgages that were issued prior to the bubble bursting, you can see that we were headed for a crash.
As Barry sees it, there were some people approved with nothing down, which was 100% loan-to-value, no income verification, no asset verification, and a credit score of 580. “That was not a very healthy amount of loans that were being done. And that’s what really caused the housing bubble. And that’s what led us into the recession,” Barry said.
The current market situation is different. During the recession of 2008, inventory exceeded the demand once the bubble burst. But in this market, the inventory is chasing demand. As long as demand outpaces supply, the market should remain stable.
2. Is There a Recession Coming?
Yes, a recession is on the horizon. But that’s not necessarily a bad thing when it comes to real estate. Typically, when we have a recession that requires the Federal Reserve to increase interest rates to reverse inflation, mortgage rates will drop. “In each recession, mortgage rates came down and I think the same thing will happen here,” Barry told us.
“As we look a little further down the road during a recession, there’s going to be a period of time where the mortgage rate that you have today, roughly 5% … there’ll be a pretty good opportunity to refinance it to a lower rate. Whether that rate comes down to 4, 3.75, 4.75, or 3%, they will come down to a level that will be more attractive than today,” Barry said.
“Also, contrary to what many buyers may think, housing values typically increase during a recession. So even if homes are appreciating a bit slower during a recession, they still appreciate. In our last nine recessions, home values have gone up during eight of them and then went up a lot after each of eight of nine recessions. The one anomaly was when we had the housing bubble in 2007 and 2008,” Barry said.
Because home values often still increase during a recession and mortgage rates come down, it’s harder for the real estate market to lose value the way it did in 2008. Overall, the housing market is stable, even as inflation drives prices up.
3. Inflation Is Too High—I Won’t Be Able to Afford to Buy a House Right Now.
Barry explains what is so often overlooked: “Interest rates are driven by inflation.” This means that when interest rates increase, it’s because inflation’s moving up.
And if you need a primer about what inflation is, here’s Barry’s easy-to-understand definition: “Inflation is too many dollars chasing too few products.” And yes, this hot seller’s market has been defined by too many dollars chasing low inventory. That’s why prices of homes have gone up so much and so fast.
“In today’s market, prices are increasing because of supply chain disruptions (e.g., chip shortages and the unfortunate Russian invasion of Ukraine). All of these factors cause a loss of buying power and a drop in the standards of living for everyone,” Barry explained.
We’re not going to lie—things are tough right now all the way around. However, purchasing a home now means buyers’ mortgage payments will stay the same year over year, whereas renters might get slapped with rental increases each year as inflation or appreciation increases. Plus, your mortgage becomes easier to manage as your income increases.
“I’m not saying affordability is easy today, right? But it’s not as bad as you would think,” Barry said. “Home prices have gone up, on average, around 18%; mortgage rates have gone up about 2% over the past year. “
That’s a positive sign. Home prices are going up. And as income also increases, higher home prices are easier to manage.
4. Will Mortgages Continue to Rise?
According to Barry, they will probably level off before they reach 7%. But here’s something to take heart in—you can refinance your mortgage after a year. By that time, the interest rate will likely have fallen back to around 5%.
The Fed will raise interest rates to slow the economy down, taking dollars out of the system. Once the economy slows, mortgage rates will drop. The economy is a cycle that is constantly working to balance inflation vs recession. When supply and demand are balanced, the economy works like a purring machine.
When demand exceeds supply, as it is now, inflation will work to reign in demand.
5. Will My House Be Worth Less in the Next Few Years?
This is a great question and it gets right to the heart of most homebuyers’ fears. The simple answer is no, most homes aren’t likely to lose value.
Barry explains that the demand for housing will continue to grow from people who will be looking for their first home in the next few years.
“So in 2022, the median age of a first-time homebuyer is 33 years old. That means they were born between 1988 and 89,” Barry explains. “With this cohort of people continuing to increase, there will be more demand for homes in the future.”
Further, Barry puts today’s housing market into perspective: “I know that we’re going through a period here that is more uncomfortable and creates fear and anxiety and worry. I get that. But slowing appreciation is still appreciation. It’s actually better, healthier. It’s not going to be depreciation.”
Overall, the real estate market looks like it will continue to grow and hum for the foreseeable future. As long as demand remains high—and Barry suggests that it will—and inventory doesn’t outpace the demand, we will continue to have appreciation in the market.
So, buyers can sleep at night knowing that if they buy their dream home today, they’ve got nothing to lose tomorrow.
As agents, we’re constantly trying to stay on top of what’s happening in the market while also making sure we address our clients’ biggest concerns.
Real estate forecaster Barry Habib makes it clear that even during a recession, real estate is still a sound investment. Homes will still appreciate in value during a recession and mortgage rates often go down. Our clients will have the chance to refinance their mortgage in the future when mortgage rates come down, while renters can almost always count on rents going up each year.
Barry thinks we’re less in a “housing bubble” and more of a “housing boom” because the millennials are already in the market. That puts eager agents in prime position to help first-time buyers even more than we do now.
Watch the entire interview on YouTube if you want to soak in more information that you can use when working with your clients. Have more questions about what the market will look like in the next several months? Drop them in the comments.