The real estate market is shifting and interest rates have increased. Is it a good time to invest in real estate? Matt Atwood, CFP® provides a real estate market update.
The real estate market affects everyone who has shelter. Homeowners, renters, buyers, and real estate investors. It is a huge part of our economy - about 17% of our GDP. The market was white hot last year and has cooled significantly over the last few months. Why is that?
Real Estate Explosion Explained
Prices jumped double-digit percentages last year. What happened?
- There was no inventory. Homes did not stay on the market longer than a few days.
- Builders encountered supply chain issues so new build availability was extremely limited.
- The expansion of work from home encouraged people to sell their homes and move. Lots of people moved to cheaper states.
- Interest rates were extremely low at almost 2%
The Fed's Solution to Cool the Market
In 2021, the Fed lowered interest rates to stimulate the economy but they may have over-stimulated it. This year they took action to cool it off. They decided to raise interest rates to about 5% (doubling last year's rate) in order to discourage people from buying. This change is helping build inventory back up.
There were an estimated 376,018 homes on the market in February 2022. Now (August 2022) there are an estimated 750,000 homes on the market so housing inventory has doubled. There are currently more listings on the market than in the past 5 years.
How Interest Rates Affect Buyers Now
As the saying goes, "What goes up, must come down."
- Increased borrowing costs have put more pressure on sellers to price cut. Less people want to buy at these higher interest rates. The combination of higher home prices and higher interest rates has taken more people out of the purchase line. With fewer eager buyers available, sellers are beginning to compromise which was not something they have had to do in the past two years.
- Most people do not want to move and trade their current low-interest rate (2%) for a much higher one (6%). This also cuts down on the number of potential buyers.
- More price cuts are happening now than in the past 7 years. This is indicative of us returning to a more "normal" real estate market.
Matt presents a case study as a real-life example of what it looks like for a couple to purchase a home in our current real estate market.
If you have questions about the current real estate market and whether or not you should buy, sell or invest, please schedule a call with our expert team.