What Does A Housing Correction Mean?

A recent Money article by Pete Grieve helps answer this question and is well worth reading in its entirety to better understand how Fed interest rate hikes, mortgage interest rate hikes, and the real estate market relate. Here are a few important takeaways from the article.

• The real estate market in general has been cooling down for months.
• In a typical housing down cycle marked by rising mortgage rates, the pace of home sales decline first, prices then drop, and inventory improves.
• Prices typically don’t fall immediately when mortgage rates rise although buyers are immediately affected. There’s often a lag.
• Prices on Maui may not drop as far as they do for real estate elsewhere because of limited inventory and high desirability.
• The term “correction” doesn’t have a numerical meaning in the context of real estate, like it does in the stock market.
• It’s important to distinguish between a market “correction” and a “crash”.
• According to Grieve, “Some housing economists are talking about the possibility of a single-digit percentage decline in home prices in the next year, while the more bearish forecasts are in the ballpark of a 10% to 20% decline.”

A cooling market with rising interest rates impacts sellers and buyers differently- especially for those who must urgently sell or buy a home. 

For Sellers

• Sellers may often list their properties at prices based on similar transactions in their area that are often several months old.
• It’s advisable to lower your price sooner rather than later to avoid chasing the market down.

For Buyers 

• Historically it makes sense to not wait as rates may continue to rise and current rates are still low by historical standards.
• Shop around for the best mortgage interest rates currently available.
• Interest rates may continue to rise or drop, a variable interest rate might make sense and allow you to refinance later but it’s prudent to stay within your budget.

The Maui market shows signs of cooling but with historically low inventory it may take a while for lower prices to be actualized across all sectors of our market. While the single-family median home price dropped below $1 Million for the first time in four months, the median condo price continues to break records. With the busy winter season just around the corner, it’s less likely we’ll see the same degree of price reductions anticipated in other mainland markets.

Whether a seller or a buyer, the Smith Team has experience navigating these shifting markets and are here to answer any of your questions.