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January 2023 HAR REPORT

Written By: Alex Buriak | January 17, 2023

Time to Read 4 Minutes

Both the price of housing and the surging interest rates and inflation causes a a shift in the market as most of you have seen since about August of 2022. The Federal Reserves relentless execution of climbing rate hikes, as they say, to tame inflation has given a consumer concern in the market or purchasing real estate. With the combination of rate increases and inflation, a consumers dollar is just not getting the buyers where they need to be in most cases. What does this mean for the investors? Is it "RUN FOR THE HILLS" no, its the pivot I have been writing about for months. These would be buyers are renting. Even if you have a flip under repair currently, you should really be re-evaluating your values and start to prepare to hold this property for rent as an exit strategy to be ready for. 

It is hard to compare 2022 to 2021 in some regards. 2021 and half of 2022 were so crazy, everything looks like a large dip. But I want you to take in perspective of the huge amount of growth we saw in the last 3 years. We are correlating it month over month and year over year with that. So, in 2022, home sales were down 11% compared to 2021 record pace. This is the first time we have seen a percent in the red since 2015. Even with this slow down, prices continued to rise and ended up in the $400,000 which kept the dollar volume closed close to 2021. 

The full 2022 housing market update showed that SFH sales fell 10.9% to 95,113 SFH sold. This should come to no shock that external economic and policy issues in Q3 and Q4 of 2022 shifted the consumer market. The HAR report shows that sale volume fell 42.8% among homes priced between $150,000 and $250,000. But as we all know, was that because these homes were not selling? If any of you had flips last year priced in this range, you would probably attest that these homes couldn't stay on the market. One reason for this is, these properties were not hardly an option as they were in years past. The median home price for SFH was $330,000 and the average price was $409,777. 

In May of 2022, the average price of a SFH was $438,301 and the median price was $358,995 in June. Lack of inventory was raising prices higher and squeezing the consumer in that regard. With the addition to inflation and the FED raising rates, this caused the sales to taper and this is what caused the declining sales by the end of 2022. 

In December of 2022, we were left with 2.7 months of inventory. At Jet Lending, we feel 3 months is a balanced market, not the 6 months you see on most national economic platforms.  As we have said in the past blog posts, we are returning to a state of normal market conditions but have our eye on the inflation and the rates to see how to pivot our investments.  As a perspective, the housing inventory across the U.S still stands at about 3.3. months of inventory.

Another thing you have to watch now as the flip investor is that days on market rose from 38 to 57 days. That's ok, but that did increase your holding time. You have to project that you have to renovate your property faster, better, and sell them at a more competitive price than you have been in the past 3 years. 

Finally, you have to be able to adjust and pivot. As an investor, you have to have multiple exit strategies in place to hedge your investment for losses.  The investor who can adapt and be not only prepared to pivot but pivot sharply is the ones that always turn changing markets into the times they became millionaires. There is no buying season, there is no bad or good time to buy real estate. It's always good to have your money is a most likely appreciating hard asset as long as you bought the property within the confines of the market in which you were in.  Be prepared to hold these properties longer on the sale. Be prepared to rent your way out until the interest rates begin to drop back down. Keep your comps conservative, keep your repair budgets reasonable with the cost of goods and labor, and don't fall for tricks to just "close the deal". As the investor, you have to be more informed during periods of transition and get all the data you can to make an educated business decision. 

Remember, no one has a crystal ball to tell you the future. I have many theories on the market, the rates, and when to expect market and financial shifts to happen. We can get caught up in the what if or could be. But those who stay the course of the present and have operations on how to pivot for the future will fair well in this period, in my opinion. Be the investor that has the inventory to deploy during the next big time to sell and Jet Lending will be behind you to help guide your plans and give you options for your wealth building journey. 

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