A year ago, it was REALLY hard to be a military buyer. Our military buyers came up against 50 offers at times, including cash offers, offers on property that were higher than the list price (by a lot), as well as incentives like waived appraisals, etc. Even when offers were accepted, the fast-increasing prices outpaced comparable sales and many times if the appraisal came in short, buyers were forced to cancel the transaction.
BUT - there is reason to believe that could all change soon. I am going to break this down into three parts:
- What's happened thus far,
- What is likely to happen next, and
- Why the military buyer could see a big benefit.
PART 1 - What's happened so far:
A year ago rates were in the 2's and 3's. Money was cheap, the fed was printing dollars left and right, and people were being paid to stay home from work. This is what let to a massive runup in home prices, as massive dollar printing created an "everything bubble" - from stocks, to real estate, to cryptocurrencies, etc. Even when inflation started to rise, politicians and government officials assured everyone that it was "transitory".
But - anyone who understands inflation could understand that it was going to be hard to contain inflation when trillions of dollars had been printed in such a short period of time. So, inflation started rising, and the fed was forced to take action. Taking action included increasing the fed funds rate, which increases other rates through the economy, and indirection caused Mortgage Rates to go from the 2's and 3's to the 6's and 7's VERY quickly.
In raising rates, the Fed is trying to increase the cost of borrowing, which reduces the cash available to spend, impacting supply and demand and slowing inflation. Their goal is to have a "soft landing" where they fall back to a sustainable inflation range without causing deflation (crash) or a massive recession.
The byproduct of this Fed policy from a Real Estate perspective is that things have slowed down a lot. Due to increased rates, refinances are down 90%, homes sales are down, price reductions are up, and it is clearly shifted to a buyers market.
That's where we stand currently. Great opportunities for buyers, but affordability is low due to high interest rates.
PART 2 - What's likely to happen:
It's likely that we are already in a recession. We've had two quarters of negative GDP growth, which is historically the technical definition of a recession, and politicians responded by changing the definition of a recession.
Politicians and government officials point to a strong consumer and solid job market to make the case that a recession is not imminent, but there are a lot of signs that they are missing some important data.
First - credit card debt has risen significantly in the past year and a half. Not exactly the sign of a super strong consumer. In addition, the Fed's interest rate increases directly affect the cost of those credit cards, which exacerbates the problem.
Also, in another sign of consumers starting to have a much bigger issue, personal savings rates have dropped significantly since the stimulus checks of COVID:
While all of this is happening, the Fed is still increasing rates and pointing to the "strong consumer" as the reason for a resilient economy.
The Fed has never raised rates this high, this fast and into a recession, no less. The economy doesn't show results of actions immediately, they changes take their time to reflect in the economic figures, and I believe the Fed has probably overcooked their attempt to rein in inflation, and bad economic data is going to start showing more and more.
PART 3 - What this all means:
The market has already shifted to a buyers market. So, opportunities to have reasonably priced homes, pay zero closing costs, and even get funds to buy down rates are pretty typical. There is a lot of room for negotiation. The problem right now is affordability. Higher rates making payments less affordable.
BUT - as the economy starts to slow, the fed will unwind their rate hikes and are likely to pivot. The sooner the economy starts showing weakness, the sooner rates will fall. This will put the well-positioned buyer in a place where they are able to get strong incentives from sellers due to a buyers market, but take advantage of lower rates as the economy cools.
Usually the byproduct of a cooling economy is increasing unemployment. But - military buyers have VERY little to worry about when it comes to unemployment, as their salaries are as close to guaranteed as they can be.
In addition, military buyers have the advantage of the VA Interest Rate Reduction Refinance program, which allows military (and veteran) homeowners the opportunity to refinance without showing evidence of income, or showing evidence of the homes value. So, if rates drop further, the loans can be refinanced to market rate as long as it makes sense to do so. It's a potential win-win-win for a long time horizon.
How to take advantage:
If you are a prospective home buyer and the logic behind all of this makes sense, the key is to create some level of flexibility for yourself. You may not have a plan of buying now, but you still want the flexibility to buy as soon as it does make sense. So if you are a military buyer interested in being prepared for this potential opportunity - contact me and I can answer any of your questions and help you put together a make-sense game plan.
If you are a real estate agent and you want to do more business with veterans and military families, or if you specialize in military/veteran clients, reach out and let's work together to serve them to the best of our abilities. There is a large opportunity for military members, veterans, and the professionals that serve them well in the first half of 2023 as long as everyone is informed enough to know what to look for.
Would love to help in any way that I can. Reach out anytime.
Daniel Lehman
The Lehman Group
760-655-1405
daniel@lehmangrp.com
www.lehmangrp.com