Impact and Understanding - The Real Estate Market During Conflict
Thank you to our friend and colleague Bill Middleton: This is a guest post from him about how our current world dynamics will likely impact the Baltimore real estate market in 2022. Bill is a top real estate thought leader in the United States, and is also the Founder of Middleton Elite Coaching for Realtors.
The word impact can be defined as:
1: A striking of one body against another: collision – The meteor’s impact left a crater.
2: A strong effect – He warned of the economic impact.
Our clients have a lot of questions surrounding the potential impact of the current conflict between Russia and Ukraine; the potential impact on energy prices, the potential impact on the economy as a whole, and the potential impact on the real estate market.
Here are our thoughts on how the conflict between Russia and Ukraine can, and possibly will, impact the real estate market.
IMPACT –
Supply and demand drive the real estate market. It is important to understand the relationship between the two.
Has anything changed with real estate supply in the Baltimore real estate market?
The answer is no. Builders can’t build any faster. And, if we do see an impact on trade routes, particularly through Asia, then we can lean on this thought:
We are currently seeing a bit of concern and uncertainty surrounding the stock market, due in large part to the stock market bouncing around a lot the first part of this year. We predict that we could see more money rolling out of the stock market and into real estate.
Has anything changed with buyer demand in Baltimore; more specifically, has buyer demand weakened?
The answer to this question is also no.
Personally, we think buyer demand may actually strengthen as a result of the conflict. Supply and demand are driven by three things:
net migration into an area
demographic trends
and affordability (interest rates)
Nothing has changed with those three things in the current real estate market.
Real estate will always be an asset.
Real Estate is the #1 asset class that people move into during uncertain and high-inflationary times. We currently have both.
There are many high net worth people from the Baby Boomer generation who are either currently in retirement, very near retirement, or living off of their 401K and such. This generation has some lingering pain when it comes to their portfolio losses during the markets of 2008 – 2010. There will likely be a knee-jerk reaction from many of them to say:
“I don’t know what’s happening, I can’t see through the fog, I can’t afford to feel that again. I’m taking my money out of the stock market because that’s less certain to me.”
Because it isn’t ideal to have a bunch of cash just sitting on the sidelines in a high-inflationary environment, they will be looking for a place with a solid inflationary hedge and a place they understand better than the stock market. Real estate is something many can wrap their hands around, especially in times of uncertainty.
What do you do with high investment returns during a volatile time in the stock market?
Many people saw high cash returns from stocks sold earlier this year. There is concern over putting this cash back into the stock market right now, so they want to buy real estate. We are seeing stock investments rolling over into real estate.
If you remain worried…
Remember basic economics, and that the setup of the real estate market currently remains unchanged. Barring a major catastrophe within the banking industry, there is a very low probability that we’ll see anything change in the Baltimore real estate market. We anticipate more cash buyers coming to the market; more high-net-worth individuals rolling out of the stock market and into real estate.
Baltimore home buyers that are currently unaware of current market conditions and supply and demand are among those concerned about potential market crashes.
Here are some questions to ask yourself before you buy a home in Baltimore:
Are you going to live in this house for the foreseeable future?
In this scenario, you’ll only lose money in a down market if you decide to sell. If this will be your primary residence, it makes sense to buy now. You need a place to live.
Assess the REAL risks:
Do you feel good about being able to afford the payment?
Do you feel good about your job security?
If you can answer “yes” to both, then there’s less risk involved than you might think for a “down market”.
We believe, with a very high degree of certainty, that we will see a sustained high single-digit or low double-digit home sale price growth for at least the next few years.
The leading indicators of that are:
Days on market for a listing remaining low
Months supply of inventory remaining below 3 months
Don’t buy into the theory that “The faster prices go up, the faster they come down”.
They only go down if supply dramatically exceeds demand. Until that happens, the market is going to run away from buyers at one percent a month in equity growth, plus rising interest rates. Buyers actually now have two forces acting against them because of their uncertainty.