State of the Housing Market & Economy

For the first time since the beginning of the pandemic, housing inventory is up. The latest realtor.com data shows that the number of homes on market in Chicago in December was up 5% Y-o-Y from December 2021. This is a good sign for many real estate agents, and potential home buyers.

With buyers having backed out of their search for a home in the last few months, this could be a positive signal that we are on the path to a more balanced market. Many folks are of the view that there is a housing crash coming soon, which is a reasonable alarm bell to sound, given that the pandemic sent median home prices up ~40% across the country. Who in their right minds doesn’t think that the housing market is currently overvalued?

Along with rising prices is the huge surge in real estate investing over the past decade. Many doom and gloom analysts believe this is one of the main causes of continued overvaluation, with first time investors ‘housing hacking’, all the way up to firms on Wall Street (think Blackrock) buying up entire housing complexes and neighborhoods.

Many are in agreement that a recession is likely coming. Whether it will be severe or a ‘soft landing’ nobody knows. It isn’t a good sign when Goldman Sachs plans mass layoffs of their staff. Generally these types of things, along with stock market valuations, are leading indicators of a potential recession.

With many white collar professionals paying considerable sums of money over asking price for their homes in the past 2 years, coupled with a potential recession, signals the housing market could be on the path for a legitimate correction. Think about it, Joe Schmo is a management consultant earning $250,000, and decided early 2022 was a good time to pay $50,000 over asking price for his new $750,000 single family home in Naperville. Well, Joe’s company isn’t doing too hot with runaway inflation, and consumer spending down, and now plans some layoffs. Joe gets the axe and his wife’s salary isn’t enough to solely cover their huge monthly nut for housing, AND they have negative equity in their home.

2008 all over again? I doubt it, but I wouldn’t be surprised if we see a correction in the housing market that could shock many real estate investors, and those that decided to live beyond their means.