We’ve heard rumblings the last few months that shifts are occurring in the commercial and residential real estate markets. A number of factors have created headwinds for real estate including higher interest rates, inflated purchase prices, economic conditions and stock market declines.
- The 30-year fixed rate is nearly double the amount from this time last year. As of this writing, the national average is north of 5.5% according to Bankrate.
- Sellers have grown accustomed to higher comps and have been reluctant to drop their asking price. However, CNBC mentioned 1 in 5 sellers dropped prices in May and that continued in June and July.
- The fear that economic conditions could worsen given inflation, the war in Ukraine, workforce challenges and overall slowing of the economy has moved some buyers to reconsider a major purchase at this point in time. Demand has dropped, causing inventory to rise.
- Stock market declines (aka the “wealth effect’) has also given some buyers reason to pause.
If you are in the market to buy, sell or invest in real estate here are a few things to consider:
- Buy – If this is your first home purchase a rate above 5% may seem very high, especially given the historically low rates of the last few years. However, 30-year mortgage rates (from 1972-2022) averaged over 7%. Hopefully, that provides some perspective even though rates are quite a bit higher from a year ago. Also, the old phrase “Marry the house. Date the Rate,” can apply as well. Should mortgage rates fall in the future, refinancing could be an option.
- Sell – Prices are still inflated – up 19% from this time last year. Be willing to have a little flexibility when listing your property as prices are still historically high given the substantial increases in 2020 and 2021. Don’t be penny wise and a pound foolish. If you want to sell your property it could still be a good time to do so.
- Invest – Be willing to understand how interest rates impact cap rates or return on investment. Also, perform diligence on prices, payouts, rents/leases and their propensity for continued growth.
Let us know how we can help review your situation and how real estate fits into your financial plan.
Matt and Andrew