Here’s a question I keep getting: Are home prices going to come down?

Yes — and we already see that in the places where we buy homes.

There is no way that, with the increase in interest rates, home prices could remain the same.  The simple fact is those home buyers can’t afford as “much” home as they were looking for, with the higher mortgage payments.  That will keep many from buying.

In Scottsdale, where we are purchasing homes for our short-term rental fund, Hughberry Homes, we’ve seen the market soften.  There are no longer bidding wars, “have to buy all cash” ultimatums, and requirements to pay more than the asking price to purchase the property.  Prices have already come down slightly and there is an increase in available homes for sale, making it easier for us to buy and make deals on the properties.

That said: Are we going to see the same Great Recession price correction to home prices this time around?

Almost for sure, the answer to that question is a resounding “NO.” 

This time, there are a couple of factors in play that will keep the market from that extreme.

One: We are not going to have a collapse of the subprime mortgage markets as we did before.  Mortgage underwriting has remained stringent over this last decade and never reached the crazy point of “income-stated loans, please fog this mirror for us,” and they give out a mortgage to buyers who can’t afford it.

The second big reason is inventory.  When the Great Recession hit in July of 2007, there were over 4 million existing homes for sale nationwide.  In August of 2022, there were only 1.3 million existing homes for sale.

This lack of inventory is huge and since the Great Recession, far fewer homes have been built each year.  As we keep finding in our research, there is more of a home shortage than overage.  This will result in the supply and demand protecting the housing market from a similar painful price correction as we experienced in the Great Recession.

So, what does this mean for us — and you?  This is all good news for us as it allows us to continue to purchase homes for our funds at more reasonable price points.  These times of market adjustment are times when the most incredible wealth creation is possible.  Let’s go do it and be smart about it.