Lower interest rates and less competition - how long will it last?
If you are in the market for a new home, now may be a good time to be looking. Interest rates have come down and are on a path for further declines. The Federal Reserve has decided to stop raising rates, and announced there will be no further increases until next year. In addition, the Fed has announced it will stop its Quantitative Tightening (QT) program in September (QT is the Fed’s program to reduce its balance sheet by $50B per month – it will reduce to $35B per month in May and end in six months). This should help lower long-term interest rates down the road.
In addition to lower interest rates, real estate inventory has increased significantly in recent months, especially in hot housing markets like Seattle, Silicon Valley, and Denver. As homes stay on the market longer, prices get reduced, and the bigger picture is that prices are flattening out and, in some instances, even decreasing. Nationally, the average appreciation is 4.7%, according to the Case-Shiller home price index. Lower housing demand means less competition, and houses are less likely to sell above asking price, which means buyers have the luxury of choice, instead of having to go all-in to make sure they don’t miss out on the opportunity.
As the economy slows down and we head toward an eventual recession, the Fed will have to reduce interest rates further, which will lead to a tipping point when rates get below 4%. Below 4%, new players will emerge – all of the people who bought before the Fed started raising rates – which will then increase demand for housing once again. In addition, when the recession hits the stock market will crash, and that will drive more demand for real estate, as investors look for better places to store their cold hard cash.