Inflation is crazy high right now. Gas prices in California are well over $6 per gallon, which has only driven inflation higher. Mortgage interest rates were below 3% earlier this year and now are threatening to move into 6% territory! The fed just raised the short-term interest rates .75%, the largest increase in 28 years. The stock market has fallen into bear territory. Isn’t it time we hit the panic button?
While all of the above is true, worrying and, worse yet, freaking out is not the answer. It’s time for rational thinking and it’s time to recognize things aren’t as bad as they might seem. Take inflation as an example, which in May hit 8.6% nationally. That is the highest it’s been in the past 41 years. As bad as that is, there is a plan in action to combat inflation. By raising short-term interest rates, the Federal Reserve is trying to slow our overheating economy, and they are expected to raise interest rates again by another .75% in July because things have gotten so out of control.
The good news is the Fed is doing whatever is necessary to control inflation. With these hikes, we are expecting inflation to come back down. It’s not going to happen by tomorrow, and in fact we may not see peak inflation until December. This makes the economic prospects for 2023 good.
However, we are expecting to go into a recession if we aren’t in one already. I’m not terribly worried about what that will do to the housing market, because as inflation begins to cool, we should start to see mortgage interest rates come back down. Lower interest rates will only heat up demand for housing, which is still very strong. We still have a chronic lack of available inventory. So, I’m fully expecting another strong spring in 2023. The rest of 2022 isn’t looking too shabby either.
While the economy may get a little rough in the next six months, nobody is expecting the housing market to take a big hit. Even with interest rates soaring, there still has been more demand than available homes. I guess the bad news is that sellers can no longer expect their homes to get $400,000 over their asking prices with no contingencies and all cash offers. That’s probably a good thing though, because that would definitely qualify as Allen Greenspan’s definition of irrational exuberance, and that’s not good for any market.
Well-priced and presented homes are still going to do well in the market. Sellers need to have faith. Buyers are going to be able to find homes at better prices when they need a little work. This is all normal stuff, and the way the market is supposed to work. The economy overall is not doing great, but the housing market is rising above that. It’s definitely not time to freak out.