The Expert Podcast

So now we've had a few months of higher interest rates—actually a lot higher interest rates—and also inflation. So what's happening with the real estate market for those of you who may have been on the fence, maybe waiting out the market to see what's going to happen now that we've had almost half of a year? This really started in January of a new interest rate environment, a new inflationary environment, and even a new home value environment. Home values spiked up at the end of 2021, even into 2022, and many people are now waiting on pins and needles to see what's going to happen with home prices—not with home sales volume, but home prices. Because home sales volume really doesn't mean anything unless it's changing the price. If you're a potential buyer, how many other people buy houses really doesn't matter. If a million people buy houses or only one other person buys a house, the only thing that matters to you is what is the price you can purchase a home for.

Here are some facts that have come out in the last month or two of reflection on the first quarter of 2022. CNBC reports home prices surged over 20 percent in March as interest rates also rose. So there's your first clue. This is at the end of May that prices still went up, interest rates went up, and prices went up. And we'll talk about why that might be the case. What do people think is going to happen in the future? Well, from the same data, home prices surged 20 percent—highest, biggest spike this century. Think about that. Interest rates went up from roughly 2.5 percent to 5.5 percent—more than double interest rates in the last quarter. At the same time, home prices went up. Biggest spike this century as interest rates went up. That means something, and we'll get into what that might mean. Experts, whether or not they're good or not, is a matter of conjecture, but experts say it's unclear when they'll drop—talking about prices, not interest rates. When will prices drop? Well, if history is a guide, they never really do drop. Even in the housing crash of 2007 and 2008, housing prices did dip down but very quickly came back up a year or two later. That was because there was a large volume of foreclosures and poor underwriting. That hasn't happened with this spike. This spike has come from genuine demand side and lack of inventory.

What does that look like when there's a lot of demand, no inventory, and you're a buyer trying to buy a house? Well, you cry. Half of U.S. home buyers are crying during the process. This is June. So if you're looking to buy a house, it's a trying time. It's not a happy time getting into a new house. It should be something very joyful—to get a new home, a place where you can build memories, raise your family, have a roof over your head that you own instead of an apartment. But what does it really look like? Well, in this survey, 61 percent of millennial home buyers and 65 percent of Gen Zers were brought to tears during the house hunt. Sixty percent of sellers reported getting at least two offers, and that was talking about in April when half of the homes went above asking price—just like we talked about. This is April; this isn't last year in April. Half of homes sold went for above asking price. This is after the interest rate spiked up.

So what can you do about it? Well, again, there may be a bias here, but Barbara Corcoran, famous real estate retail company owner and Shark Tank member, says, “Get in the game!” To first-time home buyers, get in the game. It doesn't matter if you cry, doesn't matter if the interest rate is high, it doesn't matter if the home values are higher than they were—get in the game. You have to get in with whatever house you can possibly buy. And this is what we talk about on our channel at homesheep.com. It doesn't matter if the house that you thought you could buy in 2018—you had your heart set on, you know, 4,000 to 2,500 square feet on two acres with granite countertops. Maybe that house is out of reach, but there are many other houses that are attainable. And our channel shows those every week. We have, you know, a dozen or so houses that are $200,000 or under all over the country. According to Barbara Corcoran, you have to have a chip to play in the game and trade up and trade up and trade up. That becomes a retirement fund. Now, granted, you might say she has a bias because she's in real estate, which is true. There, you have to take it with a grain of salt. But just because she's in real estate doesn't mean this is not true. You really can't sharp-shoot a real estate market. You have to get kind of close. What you have to do is answer your family's needs, and people just like to own where they live—hang a picture on the wall, not the landlord's wall. I'm sure that resonates with a lot of you.

You can't predict how much higher or lower property is going to be, but you do need a roof over your head. And whether in a rare, unusual, unexpected case home prices go down—which is extremely unlikely—you still have a roof over your head. Look, if home prices go down, if you buy a house for $250,000 and two days later it goes down to $200,000, it's not like you have to write a check for $50,000. You still have the house over your head. You didn't really lose any money. They're not going to withdraw $50,000 from your bank account. Your mortgage isn't going to say, “Hey, you have to pay us $50,000.” All it means is at that moment in time, if you wanted to sell your house, it would be worth less. That's all it means. Five years later, ten years later, could be a different story. Ten days later could be a different story. The $50,000 of a perceived reduction in home value doesn't affect you if you're a homeowner. Now, if it goes up $50,000, it doesn't affect you either unless you want to sell it. The only time $50,000 affects you of an upward home value is if you haven't purchased yet, and according to what you see on Zillow, it just keeps running away and getting higher and higher. The demand is far exceeding how many houses there are to go around. What that means is, it doesn't matter if the price is high, people are still buying houses. Biggest spike in this century—even with prices high and interest rates high.

So sure, it may be something that makes you think you want to cry. That's only because you're comparing what you thought was going to happen with what's actually happening. If you deal with the reality of the market and buy something, there are houses out there. Even though you may have been on a house and didn't get it, there are thousands and hundreds of thousands of houses all over the country that have been on the market for two, three, four months. They're out there. The reason that they have not been purchased is because usually it's something cosmetic. Many people have expectations that the house is turnkey—walk in the door, everything's clean, granite countertops, stainless appliances, the yard is mowed, doesn't need paint—and that's why nobody's buying it. You can buy that house for much cheaper than any other house, and you don't have to bid against anybody, right? 60 percent of sellers reported getting two offers. There's houses out there that have no offers. You could buy the house today. Granted, it might not be exactly what you want, but that's why you buy it. Because it's not exactly what everybody wants, and you can make it into what you want at your convenience.

So this is what's happening in the market. For those of you who've been waiting to see what's going to happen, well, what happened is it surged 20 percent in March. So if you were in January thinking, “Well, I’m going to wait for prices to go down, interest rates to go down, or wait for interest rates to diminish the house prices,” well, this is what happened: Home prices surged 20 percent. Spiked. Experts say it's unclear when—and didn't say if—they'll drop. So again, food for thought. Everybody has different opinions. Put your opinions in the comments—we'd love to hear them. And keep your eyes out for our next video with another six houses under $200,000 that would be very, very appealing to a lot of buyers.