February 2022 Market Update
Welcome to the February 2022 Real Estate Market Update! In this blog post, we will delve into the key factors shaping the real estate market. From the impact of inflation to the influence of mortgage rates and the ongoing issue of low inventory, we will explore how these elements are shaping the current landscape. So, let's jump right in!
Inflation: A Time-Honored Inflation Hedge Inflation has been a hot topic lately, and it's important to understand its implications for real estate. Real estate ownership has long been regarded as one of the greatest hedges against inflation. According to Mark Husson of Investopedia, real estate is a time-honored inflation hedge. Unlike other assets, real estate allows buyers to acquire a fixed-price asset with a fixed interest rate and fixed payments, all while leveraging their investment. This means that when home prices appreciate, buyers not only gain returns on their down payment but also on the full value of the home. With the leverage provided by real estate, the potential for growth and wealth accumulation is substantial.
Historical Performance of Real Estate: Real estate has consistently kept up with or outpaced inflation over the last 50 years. In 2021, real estate demonstrated remarkable growth, outperforming inflation significantly. While it remains to be seen what 2022 has in store, these historical trends suggest the continued potential for appreciation in the real estate market. Even a recent study conducted with real estate economists indicated a projected appreciation of 24% to 62% over the next four years. Regardless of the projection, continued appreciation bodes well for both current homeowners and those planning to enter the market.
Mortgage Rates: Understanding the Relationship with the 10-Year Treasury Yield To comprehend mortgage rates, it is crucial to grasp the relationship between mortgage rates and the 10-Year Treasury Yield. Although the federal government does not control mortgage interest rates directly, it can influence them through the 10-Year Treasury Yield. Historically, there has been an average spread of 1.7% between the 10-Year Treasury Yield and the 30-year fixed-rate mortgage. As the 10-Year Treasury Yield has been climbing in recent months, the Federal Reserve's efforts to strengthen the economy post-pandemic have played a role. However, it's important to note that even with rising rates, we are still experiencing historically low mortgage rates compared to the last 50 years.
Low Inventory: The Continuing Challenge One of the significant challenges in the real estate market is the persistently low inventory. In December 2021, the month's supply of inventory in the Richmond housing market stood at 0.5. To put it simply, at the rate homes were selling, it would have taken only two weeks to sell all the available inventory in the metro Richmond market. This scarcity of homes indicates that we are still firmly in a seller's market.
Seasonality and Market Trends: Interestingly, December 2021 turned out to be the hottest month for sellers throughout the entire year, defying conventional wisdom about seasonality. This challenges the notion that the winter season is a slow period for home sales. In this current market, with high demand and low supply, any time of the year presents favorable conditions for sellers.
Implications for Sellers and Buyers: For sellers, three key points emerge. First, forget about traditional seasonality; the market's demand and supply dynamics override any seasonal considerations. Second, marketing matters even in a hot market. While homes may sell quickly, proper preparation, staging, and effective marketing can help sellers achieve the highest possible price. Lastly, favorable terms are available upon request. Sellers who need flexibility in their transactions can find willing