Hale notes that many factors can impact home prices; among them is supply.
He notes that low housing inventory keeps prices elevated for years at a time, meaning buyers shouldn’t expect prices to crash instantly but might see gradual adjustments over time. will be hard to make, given the recent volatility in the housing market.
1. Interest Rates
As you’re likely aware, interest rates play a vital role in monthly mortgage payments. They’re calculated based on how much money is borrowed based on the supply and demand of funds; when borrowing more money is desired by businesses or governments to spend, then they bring in drives interest rates up while saving motivates individuals to lower them.
During the pandemic, mortgage rates dropped dramatically, making homeownership more affordable for many buyers and fueling a rapid seller’s market where homes would sell quickly for above the asking price.
However, when the Federal Reserve started increasing interest rates in March 2022 and thus drove home prices down significantly. This caused housing activity to decrease significantly, and homebuyers found it hard to afford higher mortgage payments.
As financial markets remain uncertain, household wealth could decrease, and demand for luxury homes in California and other expensive areas could decrease, leading to less interest in high-priced areas like Beverly Hills or Miami Beach. Conversely, market volatility might create opportunities for luxury buyers looking for secure investments to offset stock market losses; it will be essential for both buyers and sellers to remain aware of current and long-term trends when making decisions regarding these transactions.
2. Inflation
Recent increases in inflation could have far-reaching ramifications on home buyers and sellers alike. If inflation remains elevated and interest rates go up further, purchasing a home could become increasingly challenging as buyers will have less money available to spend on purchasing one. Furthermore, higher inflation levels and interest rates reduce potential buyers, thus decreasing demand and, consequently, prices of homes sold on the market.
On the other hand, when inflation slows, and mortgage rates decrease, this might be an ideal time to buy. Buyers would then have more disposable income available and may even afford higher-priced homes. Keep in mind that inflation does not equate to appreciation; appreciation refers to when an asset increases in value over time.
Macroeconomically speaking, inflation can actually be beneficial to an economy. Rising prices motivate businesses to continue producing goods and services – leading to job creation and economic expansion. Too much inflation, however, can be harmful because your money can begin losing its purchasing power over time; for this reason, it’s essential that you manage expenses and budget carefully during periods of high inflation.
3. Inventory
Recent price volatility may be attributable to various factors, including low-interest rates and decreased construction activity. Such changes may lead to a shortage of homes for sale and lead to rising home prices in the near future.
Inventory for sale varies significantly by town and usually corresponds with how many people are buying and selling properties. When there is high demand and few sellers, prices tend to increase rapidly as buyers compete to secure desirable properties through bidding wars; when more inventory becomes available, it tends to bring down prices.
There are other factors that could have an effect on home sales, including natural disasters and economic unrest; however, their impacts tend to have less of an effect on residential real estate than stocks and other forms of investments, as most individuals treat their properties as lifestyle assets until selling or due to changes in life circumstances.
Financial market turmoil could reduce demand for luxury properties in California yet provide opportunities for those searching for homes at discounted prices.
4. Uncertainty
Uncertainty surrounding any major financial decision — like buying or selling real estate — can be extremely stressful. If you’re thinking about purchasing your dream home, however, uncertainty could cause delays or lead to abandoning the search altogether.
As the housing market remains unpredictable, its recent volatility can make it more challenging to predict its direction in the near future. However, experts generally agree that it’s unlikely for it to collapse like it did back in 2008.
Though mortgage interest rates have seen some decrease since mid-2022, they’re still above historical averages, and this suggests that buyers could face an increasingly seller-dominated market over the coming months and years.
As mortgage rates decline, they could help decrease the number of buyers unable to afford new homes while simultaneously helping the market to better reflect what homebuyers – including sellers – can afford.
Uncertainties surrounding global and domestic politics can also have an effect on the housing market. From the ongoing conflict in Ukraine to increased production shutdowns due to rising COVID-19 infection rates or new regulations affecting real estate or land use priorities, geopolitical uncertainties can create instability within markets.