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Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.
In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.
– Leslie and Kevin Lawson, LIC #DRE01896125 DRE02110900
The Big Story
To be, or not to be? That is the recession.
Quick Take:The housing market strongly outperformed inflation and stocks in the first half of 2022 and shows no sign of reversing.The Fed rate hikes are dampening demand, allowing much-needed inventory to rise, although inventory remains far from the pre-pandemic supply norms.The economy is slowing, but a recession may not be guaranteed quite yet. Regardless, housing is poised to hold steady or increase in value.Note: You can find the charts & graphs for the Big Story at the end of the following section.
Rising rates, rising prices, and economic slowdown, but homes still ahead
Economic outlooks seem to change month-to-month, and yet again, we find ourselves in a unique moment in time. The Fed rapidly switched from loose to contractionary monetary policy in March and recently increased the federal funds rate by 0.75% — the biggest increase since 1994. The effects have yet to curb inflation, which is still at a 40-year high (+8.5% CPI year-over-year). On a monthly basis, the Bureau of Labor Statistics (BLS) collects the prices of approximately 94,000 items from a sample of goods and services to calculate the Consumer Price Index (CPI). We didn’t look into everything in the BLS sample, but if you’re like us, it feels like everything we buy is closer to 50–100% higher than it was a year ago, or even several months ago. While prices are rising, the cost to borrow has also gotten more expensive, which is dampening demand. 
We are starting to see this play out in the housing market. We are noticing more inventory coming to market, coupled with fewer sales. We must, however, provide a caveat: The housing inventory is still historically low. As rates rise, especially as rapidly as they have this year, buyers can get priced out of the market quickly and must reconsider their budgets. 
A year ago, the average 30-year mortgage rates hit their lowest levels in history and have more than doubled since then, to 5.81%. Let’s take a look at some numbers to see how assets have performed in the first half of 2022: The S&P 500 declined 21% (the worst first half of the year since 1970), the NASDAQ is down 30%, and Bitcoin and Ethereum have dropped 59% and 71%, respectively. At the same time, U.S. housing prices increased by 15% nationally. Home prices, simply, rarely go down. Even if you weren’t directly affected by the 2006 housing bubble, you likely knew someone who was. One lasting effect of the housing bubble is the perception that home prices decline much like other risk assets, which isn’t the case. Stocks, bonds, and cryptocurrency are fungible assets that allow for large, multiplayer markets. The housing market has only recently become more efficient because of technology, but too many factors play into a home’s value, preventing regular downturns in the market. Large declines in liquid assets do affect demand for homes, though, as people tend to reconsider buying when they feel (and objectively are) less wealthy during dips in those markets.
But what about the Fed’s intention to slow down the economy by decreasing demand through raising rates? Won’t that cause a recession and lower home prices? We’ve already seen some slowdown in the Q1 2022 Real Gross Domestic Product (GDP)* data. The Fed’s goal is to slacken growth enough to curb inflation, but not enough to send the U.S. into a recession, which is a challenging needle to thread. The National Bureau of Economic Research, which officially declares recessions, defines a recession as a significant decline in economic activity spread across the economy that lasts more than a few months and is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. With unemployment near all-time lows and a surplus of job openings, we may end up avoiding an official recession, even if GDP decelerates for multiple quarters. U.S. GDP is expected to outpace China’s this year for the first time since 1976, which sounds positive but could be a clear sign of a major slowdown given our economic ties.
Home prices are highly likely to continue rising despite rising rates. If you were waiting for rates to drop, they won’t. The low but rising supply continues to make the market competitive and, as more homes come to market, could mark the early stages of market normalization. As always, we will continue to monitor the housing and economic markets to best guide you in buying or selling your home.
*Real GDP is inflation-adjusted GDP, which is the broadest measure of goods and services produced. All references to GDP use Real GDP figures.
Big Story Data
The Local Lowdown
Quick Take:Home prices in Southern California may be hitting a soft ceiling after two years of rapid price increases.2022 began with huge demand in the first quarter, but that demand has slowly dwindled throughout the year. Housing inventory will likely follow the normal seasonal trends; however, the new normal will include historically low inventory.Home price appreciation is moving toward a more sustainable growth rate: around 6–8% annually.Note: You can find the charts/graphs for the Local Lowdown at the end of this section.
Median single-family home and condo prices declined month-over-month, landing slightly below their all-time highs. After two years of significant price growth, it’s hard not to think that rate increases have caused prices to bump into a ceiling. Without the aid of super low financing options, fewer potential buyers will participate in the market. So far in 2022, the average 30-year mortgage rate has increased over 2.5%, which equates to an approximately 33% increase in monthly mortgage payments. In other words, the new mortgage rate adds $730 per month on a $500,000 30-year fixed mortgage, for example (double that for a $1 million loan).
Even with the rate hikes, which are only expected to continue this year, home prices aren’t dropping, nor would we expect them to. Supply is still historically low, which will protect prices from experiencing a major downturn. Prices will likely follow a similar trend to last year, with mild growth through the summer and fall months. But, as we mentioned earlier, as rates increase, the same price becomes more expensive, unless you are buying with cash.
It’s so incredibly easy to get wrapped up in the recent past, during which home prices grew massively. We can’t stress enough how uncommon that price growth was and, most likely, will continue to be. Because homes are not only living spaces but also investments, a steadier growth rate of 6–8% annually is still good for investing purposes.
Sales slowdown
Southern California’s housing inventory continued to rise in June, following historical seasonal trends. Since March 2020, inventory has trended lower and settled at a depressed level. There were over 11,000 fewer single-family homes on the market in June 2022 than in June 2020, and over 3,000 fewer condos. Although the first half of 2022 had one of the lowest inventories on record, we were pleased to see that inventory increased, a trend that usually holds until mid-summer. With June inventory continuing to rise, the next two to three months will likely show us peak inventory levels for 2022, which will likely be the lowest peak inventory on record.
In June, sales declined along with new listings, potentially indicating that demand is softening. This isn’t to say demand is low, however, especially relative to supply. Sellers can expect multiple offers, and buyers should come with competitive offers.
Months of Supply Inventory increasing, but still a sellers’ market
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes listed on the market to sell at the current rate of sales. The long-term average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Although MSI has risen over the last three months, single-family home and condo MSIs are still low, indicating a sellers’ market.
Local Lowdown Data

If you’re one of those lucky people who own a home in a “hot” area, it’s a pretty sweet feeling. You made a good real estate call. If you decide to sell, all signs point to it being an easy and lucrative transaction. It’s all enough to make a person do a Snoopy-style happy dance. But lately, there’s a downside to being in a desirable property: an avalanche of unsolicited offers. When eager buyers go too far Many homeowners are reporting that these “sell me your house!” requests are pouring in via phone calls and text messages, even if their number is unlisted. Owners are finding letters and notes left in their mailbox or slipped beneath their front door; the words “all cash!” often figure prominently. Residents even report that they’re receiving postcards with photos of their home and the words “I’m ready to buy your house!” Yup, someone stood outside and took a picture without their knowing it. Creepy! Occasionally, these inquiries come from people who actually want to live in your home very, very much. Maybe they love the school district or your charming Belgian block driveway. By personally connecting with you, they might catch you at the right moment if you’re pondering a move. It’s how some people get a dream home when housing stock is in short supply. More often, though, these inquiries are from real estate investors looking to flip your house for the largest possible profit. Understand who is behind the outreach “This is actually a big problem in Nashville right now,” says Cara Berkeley, creator of the money blog Penny Polly. “Because the local real estate market has experienced record-growth in property values and sales, there are a lot of investors on the market looking to shake out their next fix-and-flip.

Since there is so much money to be made, they are very aggressive in their search for new homes to purchase—calling, leaving notes on doors, and even texting.” So, who are these people, exactly? While some may actually intend to renovate the house then sell it, others are just hoping to buy low and sell high to make some quick, easy, effort-free cash. “Most of these offers come from what the industry calls ‘wholesalers’ or ‘bird dogs,’” explains Bruce Ailion, a Realtor Emeritus with Re/Max Town & Country. “These are typically people who do not have the money to close on the home. They only seek to get it under contract and quickly sell it to someone else for more, never using any of their own money.” These are the kind of tactics being taught in such courses that claim to help participants “become a real estate millionaire overnight!” The people who call your home are also likely to be the ones posting “we buy houses” flyers on power poles. “Title flipping for profit is one of their techniques,” Ailion explains. “A title flip will net a profit from a few thousand dollars to over a hundred thousand.” Are these offers legit or a scam? While these offers may well be legal, not everyone views them as fair. They dangle the lure of a quick and convenient transaction, with cash landing in your bank account ASAP. However, “It would be very rare for one of these unsolicited buyers to offer a fair price for a property,” cautions Ailion. “Therefore, buyers should be very wary of these offers.” In fact, homeowners receiving these solicitations sometimes report being offered no more than 70% of their home’s market value. The “bird dogs” behind these letters typically hope to find someone with a level of desperation or ignorance about the property’s actual value. Those are the ones who actually bite. Granted, there are rare situations where this kind of offer might make sense. Say your home needs major work done. (Perhaps the foundation is cracked, or the roof is on its last legs.) Maybe you’d rather just get out of your house fast. This title-flipping scenario could save the day. But for the vast majority of people, it’s important to work with a reliable, knowledgeable real estate agent.

That person can tell you the true value of your home, so you don’t lose a chunk of money. They can also respond to these inquiries on your behalf. Coping with the invasion of privacy Let’s not overlook how uncomfortable it can be to receive these unsolicited offers. It’s an annoying intrusion and makes some people feel as if they’re being stalked. Homeowners could post “private property,” “no trespassing,” or “no solicitation” signs. Still, the prospector will probably resort to contacting the homeowner by mail or email (unsubscribe if possible). If they continue to reach out by phone, most services allow blocking of unwanted callers.

Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.
In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.
As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.
– Leslie and Kevin Lawson, LIC #DRE01896125 DRE02110900

The Big Story

Mortgage Rate Hikes Now Definite

Quick Take:The Fed almost certainly will raise rates in March in an effort to combat inflation.Historically low supply is protecting the record-setting home prices of the past two years from a reversal.Elevated real disposable income, which spiked asset prices, has declined and stabilized at normal levels.The average 30-year fixed mortgage rate is rising as the expected Fed rate hikes have become definite.Note: You can find the charts & graphs for the Big Story at the end of the following section.

The Fed Dual Mandate

On January 26, 2022, the Federal Reserve (the Fed) indicated that it would raise the federal funds rate as soon as March for the first time in over three years. The Fed adjusts the federal funds rate to influence broader interest rates, which directly affect the borrowing costs of banks. Generally, if bank borrowing costs are low, consumer borrowing costs will be low(er), and vice versa. The Fed uses interest rates in particular as a tool to meet its dual mandate of maximum employment and price stability. Employment and price stability are long-term indicators for home prices.
We will start with the good news. Employment rebounded considerably from the highest spike in unemployment in modern history in spring 2020 to pre-pandemic levels by December 2021. As you might imagine, high unemployment rates for extended periods lead to less overall wealth: Fewer people buy homes, and more people experience foreclosures, thereby lowering home prices. Although unemployment seemed dire in 2020, employment is now on solid ground. If we view the current record-high 10.5 million job openings, along with the nearly 10 million new businesses created over the past two years, we get a better understanding of why unemployment dropped so significantly despite a record number of job openings. Simply put, people are working, and that is good for individual wealth and the larger economy.
On to the kind-of-good, kind-of-bad news … rising mortgage rates could help curb inflation and create a more balanced housing market (although 2022 will surely be a sellers’ market), but it will make homes more expensive monthly, hitting first-time homebuyers the hardest. With the federal funds rate at 0% and inflation at a near-40-year high, rate hikes are expected to combat inflation. Essentially, when the cost to borrow increases, fewer people want to borrow, leading to less consumer spending (less demand), which lowers prices. We can look to the last inflationary period, the 1970s, as a loose guide. Inflation today is likely to be much more transitory than it was in the 1970s, but we can still expect a rise in mortgage rates like we saw then. Luckily, however, we will certainly not reach the 18+% mortgage rate that we saw in the early 1980s. As it was then, the Fed is obligated to do something now. While we wish that we could always be in periods of high employment, low inflation, and low interest rates, as we experienced for nearly a decade before the pandemic, we must recognize the atypical nature of that period.
As we enter this new chapter of rising mortgage rates, we don’t expect home prices to change significantly, if at all, because supply is still such a driving factor. In December 2021, there were 57% fewer homes on the market than in December 2019. The low supply means that demand can decline without affecting prices. Does it matter if 10 offers drop to five? Probably not, and it might even create a better market. Sellers tend to become buyers, so unless you’re a first-time homebuyer, you’ll likely experience both sides of the market. Because sellers are often selling one home and buying another, it’s essential that sellers work with the right agent to ensure the transition goes smoothly.
We don’t expect price appreciation to see the record gains we experienced over the past two years, but we do expect home prices to increase. Another factor at play over the past two years was a sharp increase in disposable income, which has now normalized. People had more money to spend over the past two years, and we saw that throughout markets: The housing market, the stock market, cryptos, art, jewelry, etc. all reached record high prices. As disposable income has dropped to a more normal level, we can expect assets to appreciate at a more normal pace.
If you have 30 minutes, Ray Dalio’s video How the Economic Machine Works is well worth watching.

Big Story Data

The Local Lowdown

Quick Take:

Note: You can find the charts/graphs for the Local Lowdown at the end of this section.

Home price movements in a rising rate environment

Single-family home and condo prices in Southern California began the year at or near all-time highs. The housing market in Southern California has a major advantage in that a large number of people simply want to live there. Homes in luxury markets are experiencing record demand. In most of the country, we saw price appreciation slow in the second half of 2021, but the sustained record highs highlight the strong demand and desirability of the area.
Mortgage rate hikes really only move demand in one direction: lower. We are now entering a period during which factors that affect prices are more mixed, unlike the past two years when all the factors caused prices to increase. Rising interest rates, which will hopefully curb the still-rising inflation, will make homes less affordable and dampen demand. But inventory is so low that even with less demand, the market will likely be undersupplied. It might seem counterintuitive that home prices can still appreciate after increasing so much over the past two years, but with inventory at record lows, home prices in 2022 will still increase — though at a slower rate than in 2021.

Record low inventory in Southern California

We entered 2022 with historically low inventory. The sustained high demand and lack of new listings over the past year brought supply to record lows across markets. We are seeing that far more people want to live in Southern California than want to leave. Sales have been incredibly high, especially when accounting for available supply, again highlighting demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers. The incredibly high demand we’ve seen over the past year might wane as interest rates increase; however, the supply is so low that the market can handle a drop in demand without negatively affecting prices.

Months of Supply Inventory further indicates high demand and low supply

Homes are still selling extremely quickly. Days on Market declined in January, bucking the typical seasonal trend. Buyers must put in competitive offers, which, on average, are at or slightly above list price.
Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). In January, MSI remained low in Southern California, indicating a strong sellers’ market. Notably, the January increase in MSI is less instructive than usual — sales slowed because inventory is so low, not because of lack of demand.

Local Lowdown Data






Contact Us
Leslie and Kevin Lawson
DRE01896125 DRE02110900
41607 Margarita Road Suite 102 Temecula California 92591
(951) 852-0080
igniterealestate.com

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