![]() ![]() People shopping for houses are really shopping for money. This should lead to a more balanced, normalized housing market, finding a new equilibrium between supply and demand. This could make houses less affordable for most people, which might slow down the number of houses being sold and could lower prices everywhere, not just in the pricier areas.īottom line upfront: I expect inflation to eventually cool and interest rates to stay elevated. In the future, I expect to see mortgages keep getting more expensive because of these higher interest rates and the potential Fed-induced pause. On the other hand, in areas where houses are more affordable and there aren’t as many on the market, prices are still going up. In places where house prices have been really high for a while, thanks to cheap loans, we’re now seeing prices start to drop because it’s getting more expensive to get a mortgage. Longer term, if there is a slowdown in housing production and since lowering interest rates is no longer on the table to spark production, will there be a long term fall off in supply that means higher prices in the future when the economy booms? Buying up land now could mean passing on the savings to families later. This could help shelter many households from price shocks when demand returns. It’s why, again, state and local governments need to get in front of this now with incentives but also banking land where they can. Those with cash in this market can absorb lots of distressed assets at a discount and when demand returns, make a killing. If I was advising someone or something like a large REIT or investor, I’d suggest now is the time to buy up as much as possible – this might be counter to what is suggesting larger investors might do. This reluctance further exacerbates the issue at hand. ![]() With their obligations to safeguard shareholder value, they have little motivation to exchange assets locked in at low mortgage rates for deals involving higher interest rates. Furthermore, we cannot overlook the role of institutional investors. I wouldn’t say it’s volatile, but I would say the factors – higher rates, inflation, construction and labor shortage - are not conducive to a healthy housing market. ![]() Would you describe the single-family market as volatile? Have rising rates and economic uncertainty caused people to stay out of the market? It’s why the answer, I think, is for local governments to stoke new housing production with fewer regulations and subsidies if needed. If people are unwilling to move from existing housing into new units, who is going to build those? This is why I worry about supply dwindling, then when things settle down sometime in the next 18 months, demand comes back pushing up prices. My biggest concern, articulated last year, is that the “deep freeze” Prince is describing will discourage new housing development. ![]()
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