Should I Wait to Invest in Rental Properties With High Interest Rates
A shift in the real estate market is finally happening. After months of ever-increasing demand and high-ticket home prices, it seems that the market is finally cooling off. As some are hoping for a market crash, that is unlikely. We are simply experiencing a come down from unsustainable high prices.
Now that mortgage rates having increased over two and a half percentage points this year, it has made financing for many would-be homebuyers impossible. Resulting in year-over-year home sales to drop in recent months. In addition to less homebuyers, there are more sellers staying put because the interest rates on their current home is much lower than a new loan they’d take on. Despite the strong market, there are a few reasons why the real estate market is slowing down.
Demand had been incredibly imbalanced since 2019, worsening only during the pandemic. This caused home prices to go way up! Now that there are less people looking for a home, more homes are staying on the market. Changing the direction of inventory from less each month to more.
Many homeowners were getting offers higher than their listed price and multiple offers each day. This has changed and has encouraged roughly 10% of home sellers to cut prices on their homes. This doesn’t mean there’s a sale on houses, it just means it’s less competitive than it was last year, but it is still competitive.
Redfin and Compass are laying-off people
Big companies like Redfin and Compass are laying off 8% and 10% of their workforce, respectively. With their data indicating a downturn, they’ve decided to let go of their people due to their lower-than-expected revenues.
Less mortgage applications
Now that interest rates are over 6% and home prices are what they are, there are less people applying for purchase loans. Moreover, now that interest rates are much higher than they were a year ago, it’s almost killed refinancing applications all together.
With home prices effectively putting many homebuyers on the sidelines and with interest rates going from 3% to 6%, many would-be homebuyers have decided this is not the best time for them to buy. Allowing inventory to grow, demand to weaken, and giving homebuyers more time to find the right house for them.