Inflation, Rates and Real Estate- Oh My!
Inflation, rates and real estate are on everyone’s minds right now. We just pulled through a very messy couple weeks on Wall Street, the worst week of rates since the 1990’s and real estate has officially started to swing toward a buyers market which we haven’t seen in almost 3 years. Pretty much everyone will tell you that we don’t have a crystal ball but I am hopeful about some things as we move into the 2nd half of the year. Inflation is probably going to kick our butts for 6-8 months, some say it could linger into 2024.
The higher prices of goods and services will primarily affect middle America who will lose purchasing power even as wages increase. The recent real estate market has shown the effects of rapid inflation with rising prices attracting wealthy investors, cash buyers or buyers willing to overspend who ended up snatching up homes while pricing out many people who needed those homes to live in. But the rental market was not a haven to hide out in because the rental market is also jacked up as rents have also escalated due to high inflation.
Heading into this spring, the Federal Reserve decided it had seen enough. The central bank quickly raised interest rates, which saw the average 30-year fixed mortgage rate climb to 6%—up from 3.2% at the start of the year. Those higher rates, which have priced out many home shoppers, ultimately ended the pandemic housing boom. Now we're in a sharp slowdown, with the Mortgage Bankers Association reporting last week that mortgage applications are down 16% on a year-over-year basis.
In significantly "overvalued" housing markets we can see a 5% to 10% home price decline. If a recession does come, Moody's Analytics said it expects a 5% decline in U.S. home prices and a 15% to 20% decline in significantly "overvalued" housing markets & secondary markets. Last month, Moody's Analytics chief economist Mark Zandi told Fortune that spiked mortgage rates have pushed us into a full-blown "housing correction."
The central bank raised interest rates to both halt the pandemic housing boom and to rein in runaway inflation. Once the Fed has inflation back under control, elevated mortgage rates could begin to recede. With mortgage rates north of 6%, refinancings have screeched to a halt, down more than 80% from the pandemic peak and now at their lowest level in over two decades.This is leading to layoffs at companies operating in the mortgage sector, such as loanDepot, because there is simply not enough work to do. Unfortunately, layoffs are spreading deeper through the housing industry. Real estate brokerage Compass said on Tuesday it was laying off 10% of its staff, followed by Redfin Corp., another brokerage, announcing job cuts as well.
My advice is stay put for a little while til things level out a little. Everyone is in shock and once inflation starts to subside we will see rates go back down too. If you are looking for a larger home, stay the course, keep looking and if you find something great negotiate! Build in some closing cost money or plan to buy down the rate so that the loan is more affordable until you can refinance out of it. If you are looking to sell, make sure you are priced low, that your home looks absolutely excellent and positioned well in the market to get showings and offers. If you are looking to lease out your home, rents are still at all time highs so you can still list your home but in my opinion you also have to go the extra mile and make sure the house is clean and looks good before it hits the market.
If you are curious about how inflation and rates are influencing you & your home, give me a call. I would be happy to help you look critically at your situation and come up with a solution…even if that means taking a step back. I always want what is best for my clients in good times and in bad.
