Understanding Real Estate Market Cycles

Making sense of the real estate market cycles can be confusing, especially over the last few years. Looking at historical data for real estate paired with current data can help us better understand where we are headed for the rest of 2023. Based on recent reports and what we know about the housing market, here’s our outlook as of July 2023.

Mortgage Rate Outlook

According to Bankrate, the benchmark 30-year-fixed-rate mortgage over the last year has averaged 6.55 percent. Although the inflation overall is down to 3% from the pique 9.1%, it's still too high for the Fed, which announced Wednesday it had raised its key interest rate by 0.25% to as much as 5.5%.

While the rates won’t be as low as we saw a few years ago, a prediction of pausing rate hikes and a possible reduction in mortgage rates in the second part of 2023 could be a good sign for an eventual shift to a buyer’s market. Much of this depends on inflation and the labor market, so keeping an eye on whether or not the Federal Reserve can get that under control will significantly impact where rates are headed.

Home Inventory Outlook

Sales of previously owned homes are down more than 20 percent compared to last year, according to the National Association of Realtors. Two things could help add home inventory:

1. If mortgage rates decrease, homeowners who locked in low mortgage rates could be more encouraged to move and sell their homes. Right now, anyone with a 3 percent mortgage is not swapping for one that is over double that unless they have to.

2. New-build homes are on the rise following a high demand for single-family homes paired with a low inventory. We can expect many new homes to hit the market by the end of the year, helping to add inventory and keep prices flat.

Although it may sound daunting that so many people don’t want to sell their homes, you shouldn't be too worried about it. There’s a massive human element to real estate that should be accounted for. As offices remove remote work, people may have to sell the homes they bought during the pandemic to move closer to the office. Others may find work in a new area and have to put their home on the market to relocate. Many things happen in our lives that require moving, so, despite inventory not being high, there will always be a steady flow.

Buyer’s or Seller’s Market

Buyer’s and seller’s markets tend to shift every few years. Over the last two years or so, most of the country was in a seller’s market. Demand for homes was high, and sellers had more say in pricing, contingencies, and other aspects of the home buying/selling process. While it is certainly not a buyer’s market right now, we’ve hit more of a neutral territory compared to the last few years. As buyer demand reduces, we aren’t seeing the bidding wars that were happening in the hot seller’s market. We may not shift entirely to a buyer’s market any time soon, but we are seeing a more stable middle-ground that keeps homes more affordable.

Conclusion

As of July 2023, the market for the rest of the year feels very transitional. Nothing significant is expected to happen this year. Mortgage rates right now are heavily tied to inflation and what that may look like over the next few months. If inflation eases, we could see mortgage rates to go down. Home sales will be dependent on mortgage rates as well. Inventory will likely remain low through the end of the year as those who secured low rates continue to wait it out. While experts don’t expect home prices to rise, they also are not expecting them to lower. We’ll likely see steady home prices through the rest of the year.

If you want to learn more about real estate market trends and what you can expect as a buyer or real estate investor, please reach out.