War and Real Estate
Our real estate market has been showing signs of life. Demand (contracts in escrow) are up 10.2% over last year (as well as 2023 & 2024). Although demand is still 13% below normal, improvement is well… improvement. The steadily increasing supply that was tipping the market in favor of buyers has finally leveled off. New listings coming to market in February and March are down 7%. This effectively has begun to shift the buyer’s market closer to a balanced one.
The fly in the ointment? War.
The Cromford Report shares this: “While buyer demand for homes has been recovering, the recent war with Iran that started on February 28th has created some speed bumps along the way. Hopes are high that the effects are temporary, but the rising cost of gas threatens to affect the current rate of inflation in the United States. Mortgage rates do not like inflation, and in response they have risen from 5.99% to as high as 6.4% as of this writing. This increase in mortgage rate gives buyers two choices, to accept a 5% increase in payment, or a 5% drop in purchasing power.” Of course, the unstated third choice is for buyers to go to the sidelines and wait until the war ends.
So far, the most immediate impact seems to be higher interest rates. Rising inflation generally causes mortgage rates to increase because lenders require higher returns to offset the reduced purchasing power of future loan repayments. Which of the three choices buyers are choosing will show up in the next month. Whatever the impact, we will be tracking the market and reporting our findings. To further quote the Cromford Report: “The message for sellers continues to be patience. The housing market is in recovery, but it’s a slow one.”
Russell & Wendy Shaw
(Mostly Wendy)