My millennial cousin, Laura, works for a well-known consulting firm that transitioned to remote work during the Covid 19 pandemic. Originally from the Bay Area of California, she recently visited Los Angeles for two months to take advantage of her “work from anywhere” arrangement.
I was fortunate to spend some quality time getting to know her better. We even talked about her finances. She is doing great for a 27-year-old who earns well over the average California household. Still, she is concerned about the current housing market and thinks she should “hold off for things to slow down” before considering buying a home.
Revisiting last month’s article, it is important to note that we are in an unprecedented real estate market. In 2021 alone, the market ended with 18 percent growth and a $50,000 average increase in national real estate prices. With the current uncertain but low interest rate environment, public policy, and millennial housing demand trends, we might expect an even higher increase in prices in 2022. However, there are other indicators that suggest there might be a soft slowdown in the Real Estate market. This article examines those inventory trends.
According to former JP Morgan Chief economist Dr. Anthony Chan and author of his own online publication, The People’s Economist, “… after many years of inventory shortages, the available stock of new homes is no longer in short supply.” The normal inventory level jumped to 9.0 months in April and to 6.9 months in May. “One must go back to 2018 or 2011 to find instances where the inventory of unsold new homes equaled or exceeded 6 months (www.thepeopleseconomist.substack. com 5/10/2022).”
What caused the slowdown in inventory sales? As mentioned last month when I posed the question of the effects of a hike in interest rates, according to Anthony Chan, the Fed’s policy to raise interest rates was a factor that led to an increase in inventory.
How will the increase in inventory affect home prices? According to Dr. Chan, the housing market should soften in the second half of 2022. However, there are a couple of things to consider. First, if inflation peaks during this time, we should expect fewer interest rate hikes. Fewer interest rate hikes would maintain the current trend of rising real estate prices. Second, signs in inventory moving past 6 months to sell and if interest rates rise and inventories exceed six months, we can expect housing prices to level out or slow down.
In summary, the US housing market continues to be unpredictable. For that reason, we are monitoring the above indicators to assist clients with proper planning for purchasing Real Estate. If you are in the market to purchase Real Estate or would like to discuss current trends, contact me. There are ways we can help you position yourself to mitigate risks that the current Real Estate market may pose.
Rather than thinking short-term, it’s recommended to give yourself a sustainable time horizon for real estate purchases. Work with a financial planner to help properly structure financing and cash flow to avoid a market downturn impacting your personal wealth.
If you already have an investment advisor, congratulations. However, if you’d like to learn more about what investment advisors do for their clients, please feel free to reach out to me at empirKalpartners.com for an individual assessment.
About the Author
Edward Vela is an Investment Advisor and Estate Planning Specialist at empiriKal partners, llc©, with 13 years of wealth management experience. He earned a Journalism Certification from the University of Massachusetts, a BA in Political Science, a Financial Planning Certification at UCLA, and an MBA from the UCLA Anderson School of Management. You can contact Edward at 925-300-8805 or email edward@empiriKalpartners.com.
