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March 17, 2023



 

The Real Estate Market & Banking: An Update




The last 3 years have been quite the rollercoaster ride! From lockdowns to a rapidly appreciating market to rising rates to… a potential recession and market slowdown. No wonder that we are left feeling a bit tired, confused and uncertain about the future! While the market is undoubtedly shifting, the silver lining is that real estate continues to be a stable asset class.


Interest Rates


Rates moved up sharply in 2022 putting pressure on home affordability. Following the shutdown, the government had pumped money into the system in order to restart the economy. While it worked, it did set off the inflation we are now experiencing. To tamp down inflation, the Fed has been increasing the Funds Rate which impacts mortgage rates and other consumer loans. While current mortgage interest rates are higher than a year ago, the rates are now within the historic average range. Since the 1970’s, the long term average 30 year fixed mortgage rate has been around 7%

For perspective, see the graphs below:




Inventory


We are in the midst of a housing shortage! For the last decade, new home building has lagged behind demand. It is estimated that there are 4-5M fewer homes currently built than needed to be in balance with changing demographics. If you are a seller, this means less competition and the ability to monetize at the top of the market. If you are a buyer, this means prices are unlikely to move downward and conditions continue to be ripe for pricing appreciation. Translation, housing values tend to go up over time.


Employment


As of the last job report, the economy is actually adding jobs and the unemployment rate is at a 50 year low! If you listen to the press, the news is gloomy. Did you know that the NASDAQ companies account for only 4% of the national workforce? And that tech companies have laid off only 1% of their workforce? On the whole, the employment picture is strong.



Distressed Sales


Most homeowners have positive equity in their homes. Absent the threat of discounted / distressed sales, pricing stability is likely to continue. Translation: housing values are unlikely to drop significantly.



What do we think?

We think it’s always a good idea to own real estate. Timing the market is virtually impossible and thus your time in the market is the key factor. Owning a home allows for you to lock-in your housing costs and to build equity over time while enjoying the consistency of long term housing appreciation. We are living by two mottos this year:

  1. It’s better to get a good deal on a great house than a great deal on a good house

  2. Marry the house, date the rate. In all likelihood rates will drop below current levels and owners will have the opportunity to refinance.

In today’s market, sellers have the ability to sell at cyclical highs while buyers have the ability to get into the market and to start building equity. Call or text us this week and we can consult with you about your specific real estate goals and help you to start planning your next move.


 

O’Connor and Highland’s mission is to build deep understanding that results in meaningful relationships and successful transactions for our clients. While real estate is a commodity, relationships are not. We seek to understand our clients’ needs and aspirations in detail, to ensure that our efforts align with your priorities.

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