Is there a US HOUSING BUBBLE?
Good read from the Federal Reserve Bank of Dallas
The key here is that prices are out of step with financials. If you look at the charts you can see that this tipping point was mid 2021.
As my Private Clients know, I have been Bearish on the overall Worcester multifamily market since July 19th, 2021, when I said the following in an email.
Current Market Analysis
I believe Worcester has hit a high water point for CERTAIN TYPES OF MULTIFAMILY. Let's look at the numbers.
About 6 weeks ago, everything was flying high; there were about 40 multis on the market at a time, and a bunch were coming on and clearing each week. Almost overnight, that number has jumped to 60 multis on the market, which is a 50% increase in inventory. And almost simultaneously, the buyers went away. I have been going to open houses on Saturdays for 3 years, and it is now like a ghost town. People used to line up to see and buy anything. Now, people only make the trip if there is a deal to be had, or a very particular property or location.
Properties That Are Selling
The places that ARE SELLING are because of:
PRICE
LOCATION
QUALITY
VACANCY - FHA AND OWNER OCC BUYERS ARE STILL THERE
BIGGER BUILDINGS
Properties That Are Not Selling
The stuff that is NOT SELLING includes:
HIGH PRICE
LOW RENTS
NO VACANCY
POOR LOCATION, SIDE OF A HILL
NO PARKING
Keep in mind that everything was selling 2 months ago like it was going out of style. THE ABILITY TO SELL JUNK IS GONE. I am not getting on the Redfin bandwagon calling the drop, but the selling of bad multis is past.
Why Is This Happening?
There are several factors contributing to the current market situation:
There are still people looking for housing.
Prices in Boston keep going up and pushing people west.
There is a structural problem in housing, due to the ability to work remote or hybrid work.
Huge frustration of buyers who are now willing to wait it out.
LOW APPRAISALS - Appraisers are hesitant to give high appraisals without direct comparable properties.
That being said, if you are looking to buy or to sell, let me know, and we can have an honest conversation about particular properties.
Market Update as of April 4, 2022
I echo what I said before, except for the appraisals. Appraisers cannot hide from the facts, and people were continuing to purchase multis in Worcester. This has driven up actual prices and appraisals. However, we are seeing a pullback in all but the most exceptional multifamily properties that are being purchased by end users.
In my client pool of 25% down investors, more than 75% have stopped looking. Look at this chart.
Interest rates in December 2021 were 3% and now they are at 4.42%. Just using principal and interest, the change in interest rate from 3% to a conservative 4.25% results in a monthly increase of $317 on a $450k mortgage, which is an increase of 17%. So on a $600k 3-family, you need to collect $317 more a month to just be where you were in December.
Current Market Issues
The issue now for the market is the lagging appraisals, which is the opposite of what was happening in July 2021. Appraisers will be forced to use houses purchased in February of 2022 with rates locked in from December 2021 as comparisons for houses purchased now in an entirely different rate environment.
Advice
My advice, as of April 4th, 2022: Hurry up if you want to sell, as there are fewer investors looking, rates are going up, and prices are coming down.
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