By Paul Branton, Director of Investor Services for Home Rental Services
If you are like most of us here at Home Rental Services, you’ve probably been waiting and wondering when we would see the real estate market cool down. Well, it appears that time has arrived.
As I write this, I’m looking across the street at my neighbor’s house which was listed five days ago at what I believe to be a fair market price. (Actually, it’s $10K lower than what I thought they might list it for based on our conversations.) It’s a great two story four bedroom, two and a half bath and updated in todays desired finishes. This home just a couple months ago would have been sold in a day with multiple offers for easily $10-$20k over list price, appraisal waivers, inspection waivers, no questions asked. As of day five on the market, I believe there have only been 5 or 6 showings and no offers.
I think I’m safe in saying the buying frenzy is over.
Another example is on the buying side where we have friends who put a house under contract this past weekend. The house that they found was listed at exactly the wrong time… shortly after the Fed announced yet another rate hike. What would have been another quick sale in Q1 or even Q2 has seen two price reductions and was at 40 days on market when they put it under contract. They said that they not only put it under contract for less than list price, but also got seller paid closing costs in the deal.
(I have not told my friends yet but I sent this house to a client on Friday and suggested we look at it for them to purchase as a rental… I guess my friends also have good taste. :)
Wow… talk about a shift in the market!
Thus far in 2022, the Fed’s rate hikes have raised the rates 2.25 percentage points. Earlier this year, a buyer could get a 30 year mortgage at a rate in the 3% range. Today, you are looking at something in the upper 5% category… nearly double! This additional interest doesn’t pay for itself. This lessens demand and as a result of that, the asking prices on homes will be falling. (And the Fed may very well raise rates again.)
What does this means for our clients?
While today is always a great day to invest in real estate, the outlook is optimistic for better deals on the horizon. Although the Fed has raised rates, it has not impacted the investor loans nearly as much as primary homeowner mortgages. That being said, we’ve seen some lenders requiring 25% down vs. the previously acceptable 20%. (But that extra 5% is better off in a house vs. Crypto, right?)
Additionally, while we’re seeing house prices adjust downward, we are still holding strong with our increased rents. This will make it an even more favorable time to consider adding another property to your portfolio.
If that doesn’t get you excited to start looking for your next real estate investment, we need to talk.
If IT DOES get you excited for finding your next real estate investment, we should probably still talk. As the Director of Investor Services for Home Rental Services, I have the knowledge and experience to help you make that next acquisition. I know quite a few things that you might not think about when finding the next property to buy.
We look forward to helping you grow your portfolio and build wealth through real estate!