The market is rapidly evolving, and you cannot afford to ignore these changes!
TGFLIP MARKETING AGENCY
November 11th, 2022
Content:
Quick Intro
Prediction Number 1
Prediction Number 2
Prediction Number 3
Is Real Estate the Weakest Sector Now?
Conclusion
1. Quick Intro
For the past several years, the real estate market has been very uncertain. Many investors and industry professionals predicted that housing values would fall at the beginning of the epidemic.
And, guess what? The exact opposite occurred!
Home prices increased by more than 20% in 2021 alone. Mortgage rates in 2022 are higher than they have ever been. In addition, the quantity of properties for sale in the United States is at an all-time low.
Having said that, here are three real estate market predictions that you should be aware of. Before we begin, it is important to note that these are only predictions that can be influenced by a variety of uncontrolled events. It is hard to predict the future precisely, but we can study the facts and foresee the probable results!
So let's get started!
2. Prediction Number 1: Home prices will stay high!
Soaring mortgage rates have left homes less affordable, but the housing supply has also been record low.
The inventory of existing houses for sale in the United States is around the same level as it was at this point last year (when prices were climbing) and approximately 30% lower than relevant 2019 figures (prior to the pandemic).
Housing prices have fallen slightly from their all-time highs in mid-2022, but they remain almost 40% higher than they were at the beginning of 2020. And, as long as there are few houses for sale, the supply and demand forces will likely keep prices from dropping significantly.
Having said that, many pundits are predicting a steep fall in property prices, referring to it as the "biggest home price drop since the Great Depression"!
3. Prediction Number 2: Mortgage rates will begin to level down!
Mortgage interest rates are not linked directly to Federal Reserve interest rate rises, but they continue to grow in the same direction throughout time.
The federal rate has risen by 300 basis points ( which is 3%), while the 30-year mortgage rate has risen from around 3.2% to 7.1% by 2022.
Take into account though, that this is happening when employment and consumer spending are high and the economy is not in a collapse. If we enter a collapse or recession and mortgage demand falls sharply, interest rates might reverse direction even if the Fed continues to raise rates.
The following general possibilities are discussed in this context:
Inflation continues high, and the FED raises interest rates, resulting in a near-8% increase in mortgage rates.
Inflation falls, causing mortgage rates to fall to around 7% to 7.5%.
If the FED raises interest rates to the point that the economy enters a recession, mortgage rates might fall to approximately 5%.
4. Prediction Number 3: Markets are taking different routes now!
While home prices continue to rise year over year, they have slowed from their peak in early summer. Some locations are cooling, while others are still hot enough that price drops may merely signal a return to normal seasonality.
“In a normal market, we’d expect to see home prices begin to back off as fall turns into winter, but the real estate market in most parts of the country remains far from normal,” says Kate Wood, home expert at NerdWallet.
6. Is Real Estate the Weakest Sector Now?
This year, the real estate industry has been a notable underperformer. By October 28, the S&P 500 had fallen about 19% in 2022, while the Real Estate ETF had fallen 29%.
The foundational businesses are not performing badly. Real estate investment trusts, or REITs, are generally structured to be viable and profitable in any market. However, increasing interest rate scenarios are typically a negative factor for profiting assets such as REITs.
As risk-free interest rates rise, the yields on "riskier" investments such as equities tend to climb as well, causing share values to decline.
Given that investors estimate the Fed raising benchmark rates by 75 basis points in November and at least additional 50 basis points in December, the real estate sector may have a rough finish to the year.
7. Conclusion
This was a comprehensive analysis of what stats in the real estate market show and what we can learn from them. General experts predict that housing prices will continue to rise, but the opposition predicts a dramatic drop.
The same can be true for mortgage rates, which, as we can see, are influenced by interest rates. If the pattern continues, mortgage rates may climb in line with interest rates. However, if the stress breaks the link, rising interest rates can lead to a recession and, eventually, lower mortgage rates.
Another observation is the distinct behavior of markets across the country. Prices in certain markets have begun to fall, while prices in other areas have continued to rise.
Disclaimer:
The information provided is not intended to be a source of advice or credit analysis with respect to the material presented, and the information and/or documents contained on this website do not constitute investment advice. The ROI varies from case to case, and TGFLIP Marketing Agency would not be responsible for any loss carried out regarding this information.
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