While most investors spend the vast majority of their time thinking about their stock portfolios, real estate often plays a much larger role in the net worth of families across the country. So when property prices fall, the resulting negative wealth effect can hurt the whole economy. This makes the questions of “will the housing market rebound” quite important right now.
Home purchases from investors continue to fall. Now down 30% over one year, investors who have sworn only by the real estate sector seem to be taking a step back. Overall, home purchases fell by a similar amount, suggesting that this sentiment is relatively widespread across the economy.
Rising mortgage rates combined with near record highs in house prices have created an unaffordability complex that is difficult for investors to overcome. Plus, with so many buyers (and homeowners who have refinanced) locked into mortgages around or even below 3%, there’s really no incentive to sell right now and buy another property with a mortgage rate close to 7%. Thus, we are left with a stagnant market.
Let’s dive into where the housing market might go from here.
Will the housing market rebound?
Historically speaking, the housing market has always rebounded. It’s really just a question of what an investor’s time horizon is relative to when a rally is likely.
Those hoping for a housing market recovery before the end of 2022 may be disappointed. From a seasonality perspective, November and December tend to be low volume months for home sales. As a result, with house prices down from their average high of $413,800 in June (about $384,800 in September), we are unlikely to see any upturn in house prices before the end of the year. ‘year.
Inflation could moderate. That said, with house prices still 8.4% higher on an annual basis, the Federal Reserve could also decide to keep its foot on the economic brakes.
The housing market is also regional in nature. Therefore, although most statistics are shared at the national level, some cities and jurisdictions may experience disproportionate losses compared to others. Thus, for certain markets, a recovery at the end of the year could perhaps be called for, if mortgage rates continue to fall.
For most investors, however, the real estate space looks less attractive than it has for some time. As with stocks and other investments, patience is key. A recovery will occur. Maybe not in 2022.
As of the date of publication, Chris MacDonald did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.