Crawfish, Inflation, & Your Homes Worth

I come today as the bearer of bad news if you are a current homeowner. Although it depends how you look at. While I do tell it straight, it’s probably best to ease you into it.  I don’t want people coming over with pitchforks as Halloween was only a few months back.

Last Saturday I went shopping at Publix.  I was looking at the fresh fish and they had crawfish. I love crawfish and decided to buy some. The lady next to me was also purchasing crawfish and she excitedly told me about buying this certain type of butter and to mix it with Old Bay seasoning. The crawfish was only $4.99 a pound and I must have got 30 of the critters in the deal.  We did this instead of making an omelet. Everyone knows that egg prices have gone up substantially because of a bird flu creating a shortage.  It’s been all over the TV and then they been interviewing some poor breakfast restaurateurs. The restaurateurs with their worried brow say they have to raise prices 10%. Since most are not like me and don’t buy crawfish but more like my wife who has trouble cracking open the tiny crawfish shell to wrestle out a nail sized morsel, many of us shrug and understand the plight of the egg maker and pay the difference.

But your home is different than the edible egg and the Buyer of it isn’t as forgiving as my wife eating her omelet. The average monthly inflation for each month in 2022 was 8%.  So, if you bought a home for $1,000,0000 it should have gone up to $1,080,000 just to keep up with inflation.  Now if you put your home on the market today, most are pricing it back at those numbers from a year ago. Not adding lots more.  Therefore, you really aren’t breaking even if you sell.  The seller has lost 8%.  It just doesn’t feel like it for the Seller because they aren’t lowering it 8% for starters.  And the Buyer doesn’t feel like they are getting a good deal because they want to see the price go down. It’s a psychological mess.

Inflation is now cooling but if the same thing happens next year your home will have to go up to $1,114,800 to break even if there is say 6% inflation. $1,144,8000 to stay even with the $1,000,000. All of a sudden there could be some pretty big separation.

If the market slips just 5% and the home drops to $950,000, we are now far off because of inflation.

As a society, we just haven’t had to deal with inflation in 30+ years.  It’s why markets sometimes can take a long time to recover. Sellers don’t want to lower the price.  However, in this case, surprise surprise, they don’t need to.  Inflation is doing it for them.

Whether or not you are selling or keeping your current home, you’ve been losing money this past year.  We all don’t want to accept that. However, it’s easier to take the inflation medicine (and not raise the price by reindexing it) for whatever phycological reason than lowering the price.  Buyers on the other hand want to see the price lowered.  But they are getting it lowered every day because of inflation. Buyers are just having trouble accepting it because they are used to seeing prices go down more from a non-inflationary 30 year period.

What I think is going to happen is the opportunity to make a good deal for a buyer will end sometime in 2023. I’m already seeing signs and experts talking about it hitting bottom now.  See from Fortune and Goldman Sachs (not George Santos). There is next to nothing in housing starts or new development start-ups nationwide. Inventory is still extremely low because homeowners are good on paper and interest rates haven’t come down enough yet.  People are still moving to Florida in record numbers. There is also no land left to build on and the low transaction level is just way too low and not sustainable. See my Crystal Ball 2023

Inflation single handedly is helping the housing market recover quickly because it’s doing the dirty work of lowering prices.

Once rates get into the mid 5’s or 4’s with buydowns and inflation tamed it’s going to activate pent-up Buyers (this is quietly becoming a huge number) who have sat out the market for 2 years. That all could come to a head with lots of reasons to buy late 4^th quarter 2023 or January 2024. That’s why I see double digit jumps coming next year in prices and tons of buyer purchases, which will still be below break even from early 2022 buys when you account for inflation.

Jeff Lichtenstein is owner and broker of Echo Fine Properties, a luxury real estate brokerage selling real estate in Jupiter  and homes in Palm Beach Gardens, Florida. He has 20 years of real estate experience, has closed over 2,000 transactions, and manages over 70 agents in a non-traditional model of real estate that mimics a traditional business model.  Some publications he has been quoted in.

Feel free to ask him a question directly at jeff@EchoFineProperties.com including a complimentary real valuation of your home.