Forty-year high inflation and now an officially titled recession are certainly having some impacts on the housing market. In what has only been several months, we have gone from insatiable buyer demand to millions of buyers being priced out of the market. In turn, this has led to more properties remaining on the market for longer periods of time and even having to implement price reductions. So what does this all mean and where do we go from here? We share 6 things that you should know about the current real estate market below.
6 things to know
- Mortgage rates are rising and expected to rise further: Mortgage rates have essentially doubled from approximately 3% a year ago to around 6% now. Although many economists had believed that these rates would rise gradually, the latest inflation figures have resulted in more rapid hikes. Ultimately, out-of-control inflation is to blame here and this rate hike pace will continue until inflation retracts some.
- An adjustable-rate mortgage (ARM) may be a good option: If you are a home buyer that is planning to sell or refinance your home in the next 5 years, a 5/1-year ARM may make more sense because the rate on these loans are lower. For example, a 5/1-year ARM will save you approximately $300 per month as compared to a traditional 30-year mortgage on the purchase of a median-priced home.
- The real estate market is cooling: Not surprisingly, the real estate market is cooling due to decreased buyer demand. As a result, existing home sales have dropped for the past 4 months and continue to do so. Across the country, we are now seeing more listings reduce their prices in order to attract buyer traffic.
- Institutional buyers may be competing even more with first-time home buyers: With rising mortgage rates impacting home affordability, many would-be home buyers are opting to rent for the time being. This is leading to increased competition for rental homes and thus rental price increases. As a result, these higher rent prices mean higher profits for institutional buyers. Therefore, they will likely be looking to add more units to their rental housing portfolios. This ultimately means more competition for first-time home buyers.
- The inventory of homes will gradually improve: Overall, housing inventory is still at historically low levels. With this said, the reduced buyer demand is allowing these inventory levels to improve slightly. Moving forward, it is expected that the overall inventory will continue to increase for the remainder of this year.
- Home prices are expected to stabilize or rise slightly: After the incredible run up in housing prices of the past few years, it is expected that prices will stabilize or rise very slightly in most markets. Of course, there are many factors at play here, including inflation and how long the recession will last. If economic conditions continue to deteriorate, it is quite possible that housing prices retract some across the country.
Unfortunately, nobody has a crystal ball for the housing market. Therefore, it is critically important that you work with a local and knowledgeable real estate professional when analyzing your local market. Throughout the South Florida market, Live South Florida Realty, Inc. has built an unparalleled reputation for providing exceptional customer service and unmatched local knowledge. Are you looking to buy or sell in South Florida? Contact Natasha at Live South Florida Realty, Inc. today! Also, don’t forget to download our free Florida Home Search app in the Apple iTunes or Google Play Stores!