In the ever-changing housing market, it’s hard to stay up to date on the latest news. Not to mention, getting accurate information from a credible source is a whole ‘nother ball game. That’s why we’ve brought in financial expert Steve Greiff, Senior Vice President and Director of Mortgage at Johnson Financial Group, to give us the lowdown.
Steve breaks down the state of the housing market today and what that means for both buyers and sellers. He’ll answer questions like, why is it a “seller’s market” right now? How long will the seller’s market last? Is now a good time to buy (or sell) a house? And some advice on how to prepare emotionally and financially for one of the largest financial transactions you may make.
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2022 Housing Market Overview: Everything You Need To Know With Steve Greiff
We did an episode not too long ago about the crazy housing market in Milwaukee. There’s still a lot going on here in Southeast Wisconsin. A lot of people are looking to buy houses, investment properties, Airbnbs, and a lot of things like that or are looking to sell. We’re going to get another update and I’ve got a great guy here to give that update. Steve Greiff is the Senior Vice President and Director of Mortgage at Johnson Financial. He leads JFG’s mortgage team throughout all of Wisconsin and has many years in financial services and mortgage experience here in the Midwest. Steve, it’s good to see you. Welcome to the show.
Thanks for having me. It’s a pleasure to be here.
The overarching question is what can we expect in the housing market for the rest of 2022?
There are two key pieces there. Let’s first talk about interest rates. In ’20 and ’21, we saw historic lows when it comes to interest rates. Coming into 2022, we knew that rates were going to rise. We weren’t sure how much that increase was going to be, but to give you some perspective, at the beginning of March, you could still get an interest rate for a 30-year fixed performing loan in the low 3s. 30 days later, that went up to 4%. As we sit now, the national average for a 30-year conforming loan is right about 5.25%. It may have fluctuated a little bit but it was about 5.25%. Pretty hefty increases.
Any idea if those are going to continue to rise or do you think they’re going to stay there for a little while?
We’re in a new normal, but still fairly low rates, especially when you compare to previous decades.
What were those typically at?
If you look at the early ’80s, you’re averaging 16%. It’s a pretty high rate. 5.25% is still pretty good. My folks got their first home and their rate was 16%. I remember my dad telling me that when I first got into the mortgage industry. I was like, “How did you guys do it?” It’s a lot.
It has a massive effect on the amount of interest you’re paying. I bought a house for the first time in September and I got the mortgage bill. I saw how much was going towards interest even on equity around the 3.5% or something at that point. That’s a big effect.
It is. The second big piece is around the inventory and housing availability. It’s a supply versus demand equation right now. A supply is low and demand is high. You’ve got a lot of new buyers coming into the marketplace, the prime age for buying a home. You look at the Millennial demographic. Many Millennials will be turning 30 in 2022. They are coming to the prime age to buy a house. There’s not enough inventory out there.
You got ready-built homes. You got inventory problems. Constructions have been slowed. You got a lack of workforce. Building supplies, the costs have gone up. Typically, 2 X 4 is in a normal environment. If you’ve ever built anything, you can get a 2 X 4 for a little over $2. The last time I checked, they ranged at about $9. That’s a lot. Plus, you’ve got the supply chain issues for construction as well.
How does this affect home prices? You looked at the higher mortgage rates and then you look at the supply and demand, which I’m guessing if it’s still a seller’s market, the supply and demand have held relatively steady over the last couple of years since the housing boom started when the pandemic hit.
It’s a seller’s market. It is going to continue to do so. There isn’t an opportunity to create balance within the market. You’re not going to see a large amount of inventory injected in which would balance that out. In the near term, you’re going to see higher prices and increased offers on homes. We’re seeing cash buyers get moved to the head of the line. It’s a little bit more guaranteed within the transaction because they’re bringing cash to the table. We’re seeing a number of buyers overpay for homes just to acquire them. They’re going up against multiple bids. They’re the ones that are winning.
Is there any end in sight to this seller’s market?
It’s going to continue through 2022 and into 2023 because of that ratio. If you have a huge injection of inventory, that would balance it out, but that’s not going to happen. It takes time for that to occur. The flip side is with these rising interest rates, you could see demand fall off because of affordability, and people don’t want to pay that much for a house. That’s also keeping some homeowners in their homes. If you want to move, but you aren’t guaranteed to find a house where you want to buy, then people are going to stay where they’re at, especially if they refinance in the past couple of years and they’ve got a low rate. They can be looking at a rate that’s almost double what they’re sitting on now.
You could get a lot for your house.
Where are you going to go? It’s the same thing with cars. You get a lot for your used car right now, but you got to go buy one.
That makes sense. What decisions and considerations should sellers and buyers be making going into this market?
It can’t just be a decision based on the transaction. It’s not just a mortgage or real estate transaction. You need to take a holistic view of how this is going to impact you. You brought up and comment on investment properties and second homes. I keep hearing from friends and family, “So and so just bought a lake house,” or “We bought an investment property because we want to start building our little fiefdom of rental properties.”
It sounds like a great idea, but there isn’t a standard recipe card for everyone. It’s very personalized. You need to dig in. Whether you are a first-time homebuyer or taking a step to get a second home or investment property, you need to break things down. You need to get a support group around you to help guide you through it and give you the education you need.
Financial stress is the worst stress there is. If don’t make the right decision, you could end up with a property that is causing you problems. It’s not like you have the opportunity to return a piece of real estate. You can’t go back to the store and return it. You’re going to have to sell it and that can take time. The best recommendation is to get a strong support group around you. Get that financial support and service.
You need to talk to folks about your financial plan. That’s key. Is this decision going to fit into your financial plan? It’s got to make sense. Is it going to fit into your lifestyle? It’s a big obligation. In the past few years, my wife and I have been looking at lake properties. It’s not the financial implications that have been keeping us from making that decision. It’s a lifestyle decision.
It may sound funny because you think your lifestyle would be improved if you buy a second home and it’s great. You’re right around the lake. You’re in a beautiful environment, but there’s an obligation there. If it’s three hours away and something goes wrong, you’ve got to be there. There’s going to be upkeep. It’s the same thing as with an investment property. It’s going to cost you money. It’s never going to be perfection. You need to be prepared for it. You need to be emotionally and financially prepared. You got to expect the unexpected.
That’s very well said. One of the questions I had was any overarching advice to first-time homebuyers or people looking to buy an investment property. You went through a number of things to be cognizant of. Are there any overarching principles that people should make sure they have in line before buying a house? You work with a lot of people on this.
We do. Not just on the consumer side, but even internally at Johnson Financial Group, we have an approach we call OneJFG. That’s mortgage partnering with wealth, private banking, consumer banking or commercial to ensure we have the right people to support our consumers. From there, we can start breaking down what their goals are and help them with the guidance on getting to their end goal and getting through that decision process.
One of the big pieces on the mortgage side is you need to be educated on what you’re up against in the market, how you’re going to have to behave when you go to make an offer on a house, and you need to be pre-qualified. The pre-qualification is key. If you don’t have that, you’re not going to be considered. Keep in mind that you’re going to be competing with other potential buyers that have pre-qualifications from other lenders, but you’re also going to have that cash buyer. You need to be smart. You need to have the right guidance. You can’t do it alone.
Mortgages are complicated. It’s more complicated than it needs to be. If you haven’t gone through it, it can be an arduous process. I’ve been in the business for many years. I’ve bought a number of homes. It’s still stressful for me. It’s probably one of the biggest transactions you’re ever going to go through. It’s having that guidance, the right support group around you, and that prequalification walking in.
What would you say to a mid to late 20-something or early 30-something who wants to buy a house for the sole reason they don’t want to be wasting money on rent? I hear that quite a bit.
It’s a very common conversation right now. As I said, there are so many Millennials coming to that prime buying age. The guidance would be to get a support group around you and get educated. It’s not just a transaction. There are many things that are tied to it. Whether it’s financial, emotional or lifestyle, you have to commit. If you feel like you’re ready to do that, then getting the guidance, a realtor, and a strong loan officer to work with to help guide you is key.
Also, understanding not just what the process is going to look like, but what it’s going to take from you financially. It’s not just what’s on the paper. There are other costs that are going to be incurred. As a homeowner, things break down. You’ve got property taxes and homeowners insurance. You’re going to want to upgrade. There are all things to keep in consideration.
I’m aware of that as I said I bought my first house in September. I remember my girlfriend was like, “You’re going to mow the lawn, right?” We don’t have a mower. I’m like, “Sure. I need to mow it once a month, right?” She’s like, “No, every week.” I was like, “I don’t want to do that shit.” Now, we’re paying for that. The washer broke down a couple of months and those are quick $300 to $400. It adds up stuff that you don’t have to deal with at all when living in an apartment. What you said about it’s not just the cost that’s on paper. It’s a lifestyle thing too. Do you enjoy doing that stuff? Do you not enjoy doing it? You still have a house, but you’re going to have to pay for someone else to do it if you don’t want to do it.
That freedom and independence come at a cost.
You talked about a lot of cash buyers coming into the market. What are the pros and cons of being a cash buyer?
On the pro side, you’re probably going to get pushed up in the line of bids and offers because there’s an implied guarantee. The money is there. If you’re working with somebody who has to get a conventional loan through a bank, then there could be some twists and turns involved in that. The phrase, “Cash is king.” It is but ultimately, the seller is going to decide who they sell to. I told you the story about how we sold our property down in the Western suburbs of Chicago. We didn’t sell to the highest cash bidder. We sold to somebody who we wanted to live in our home.
You have an emotional attachment to your home. If you raise children in that home and lived in that home for a long period of time, that could predicate who you want to hand that home off to. That’s the approach we took. You are hearing a lot of transactions these days where you end up having some bidders that are going through conventional financing, and then a couple of cash bidders. It ends up being those two cash offers that bid against one another that ultimately ended up winning.
Anything else that people should be aware of on the housing market right now for people who are looking to buy or sell?
Some of the key points are you need to be patient. It’s going to take some time. The sooner you can get the education and perspective on what you’re trying to do and get the support you need, you’re going to be ready for it. That patience kicks and allows you the time to achieve the end goal. It’s a tough market and you need to be prepared for it.
If I’m in a seller’s shoes right now, it’s a tough spot. I’m not sure how quickly you’re going to find a property if you sell your home. That’s why we’re seeing a lot of folks retain their homes. They’ve chosen not to move. They’re upgrading their homes. They’re spending money to do a new kitchen, new bath or new home office because now they’re working from home. The largest demographic that holds the most real estate in the country is the Baby Boomers. We’re seeing them age in place more. They’re not releasing that inventory. They’re staying where they’re at.
That’s interesting. Is that going to be released at some point, 5, 10 or 15 down the road? Would you think that would tip the market?
You would think, but if I put myself in my parent’s shoes, you’re in a home you’re happy with. You could probably make a couple of tweaks to it and be happier for a longer term. When you weigh that against, “Where am I going to move to?” That’s a stressful decision. Not everybody has the ability to find the home they’re going to be moving to and secure that with financing or pay for it, and then put their current home on the market. It works in the reverse.
You would think building homes would be a good business to be in right now, but the supply chain is so jacked up that you’re not seeing the amount of inventory that wouldn’t normally come to market come to market.
Correct. It’s a challenging time for builders. It’s the cost of the goods. It’s the supply chain and lack of workforce. They’re doing a great job trying to keep up. You’ll start to see some of that, hopefully, ease over the next few months. For now, it’s a challenge.
Thanks so much for coming on. It was great talking to you.
Thanks for having me.
Steve, where can people find you if they want to reach out?
It’s JohnsonFinancialGroup.com. They can reach us through email and phone. We’re accessible.
Awesome. Thanks so much for coming on.