Read on for more insights into the housing market.
The rise in interest rates over the past two years has had downstream effects on the housing market, many with important implications for buyers. Mortgage rates are now much higher than they were just a few years ago.
On top of higher rates, higher prices for homes have combined to slow applications for mortgages and dry up the re-financing market. Homeowners who locked in low mortgage rates in 2020 and 2021 are now reluctant to move and give up those attractive rates, which limits inventory of homes for sale. It will take a sustained increase in housing starts for new construction to meaningfully boost overall inventory.1
So, what about the rental market? Rents have flattened recently, though they are still 25% higher than they were during the COVID pandemic. Housing costs are still one of the main drivers of inflation,2 meaning that even as inflation cools, higher prices and rents in the housing sector could keep that figure higher than it otherwise would be.
Investors need to know that housing cost of capital is much higher and there will be continued uncertainty in the sector, particularly until we learn what the Fed’s short- and medium-term actions will be regarding interest rates, and how real estate in major metro areas’ downtown cores fully recovers from the pandemic.
For more information, check out RMB’s recent Market Briefing on the housing market at https://rmbcapital.com/news-and-insights/market-briefing-housing-market.
- Reuters: https://www.reuters.com/markets/us/us-single-family-housing-starts-fall-june-permits-increase-2023-07-19/
- Washington Post: https://www.washingtonpost.com/business/2023/06/26/rent-prices-drop-2023-housing-market/