Home builders’ belief was shattered yet again as the NAHB (National Association for Home Builders) has recovered the lowest ranking since 2012. At a point in time when the demand for real estate has taken a dive, the interest rate is rising, and the cost of living just keeps going up.Â
Will We Experience a Shift in the Housing Industry?
At such a point sentiment digits under fifty are considered a negative turn, and December 2022 recorded a two-point drop hitting 31. Keeping the number in mind, and in the hope to keep demand up the larger portion of homebuilders around the USA are offering various incentives.
Keeping in mind that buyers are facing rats that have skyrocketed in the last year alone, any form of incentive is considered a step up. These incentives include, but are not limited to mortgage rate buydowns and lower purchasing prices.
Elaborating in the same report the NAHB specified that they expect a weak housing market throughout 2023, but there may be hope in 2024. While the gap may seem a lifetime long, the ups and down in the housing industry have been consistent since the dawn of time.
Why is Sentiment Down?
The Covid19 years have left us with a hot housing market, pushing the average home price to 30% – a great leap that was recorded between 2020 and 2021. All of these came with remote work opportunities and broke the basic norms – pushing individuals to rethink the plan they had in mind.
At the beginning of the issue, homebuilders gained a great deal of benefits, regardless of the difficulties faced in the supply pipeline. With every passing month, the demand for property remained high, but there came a point where the supply chain issue added to inflation. At such a turn it became inevitable for the decade of record-low interest rates to come to an end.
A shift we noticed at the beginning of 2022, as the Fed implemented five interest rate hikes in a single go. While the first four hikes were a massive 0.75%, the last one was 0.50%. The lower number was the result of a meeting held by the FOMC (Federal Open Market Committee).
These small adjustments over the passage of months pushed mortgage interest rates through the roof. To a point where the 30-year fixed mortgage rate went from 3% to 7% in a matter of months.
Such an intense advancement pushed away buyers, as the difference made the choice for them. Pushing down the housing market, as the demand for homes decreased by 37.4% in under a year.
Outlook for the Housing Market?
While inflation has started to come down in the USA, that does not mean the situation will resolve in a matter of weeks. Surveys show various projections, most of which point that homebuilders will be taking on an uphill battle.
Additionally, keeping all these aspects in mind the NAHB has predicted that 2023 will be a tough year for the real estate market. On the other hand, some optimistic see a small glare of hope in the long-term future. Noting that once inflation comes down, interest rates will come down as well. Making it more affordable for citizens to pick up a mortgage.
Investors Take
Investing in anything is risky, which is why real estate is no different. The best way to protect yourself is to diversify your assets and hire a professional to help you through the process. It is a tough time for everyone involved in the process, and the best way to come out of the situation with minimal damage is to protect your interests.
