Change Is In The Air
Do you feel the change that is happening? Seems to me we are feeling sprinkles of rain but can see very large storm clouds in the distance. The question is will the storm come right at us or pass by?
From a real estate perspective, we are seeing a shift happening of growing inventory and a reduction in demand. Demand still remains strong given the headwinds of higher interest rates but the reason inventory is growing is because homes are not selling as fast as they were due to a reduction in the buyer pool. Interest rates are remaining stable now at around 6%. Will they go up from here? Maybe. Depends on if inflation can get under control. The latest Consumer Price Index report of year over year inflation of 9.1% in June shows that inflation is not yet under control. If that continues, then we will likely see rates go higher than 6% which will reduce demand even further.
The good news is that we needed to increase the supply of homes. We have had incredibly low supply for the last 2 years now and that has contributed to real estate values going through the roof (pun intended) which has made it unaffordable for many buyers entering the market.
The chart shows inventory in the Chicagoland area over the last five years. The dotted line shows the mid point of inventory and you can see where we are now as of June. There is plenty of room for inventory to grow before it gets to levels back in 2019 when the market was appreciating in the low single digits. If / when inventory starts to exceed that dotted line then brace yourself for a material change in the real estate market.
I’ll be keeping a close eye on this and, of course, will report on the “storm" in the distance.