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Real estate markets cooling as mortgage rates hit 20-year high

Rising Interest Rates/ Changes in current market conditions

The effect of the increase in interest rates can be felt throughout the entire market. This has caused investors to take another look at these investments they may have considered based on how expensive the dollar has become.

This increase in interest rates has also affected how international investments look, and with a rising dollar and rising rates, it's squeezing the profitability globally for many interested investors. The dollar has already surpassed in value with the Euro and continues to work towards parity with the British pound. This may provide opportunities in the future for investment opportunities in Europe and its economic zones.

What it has done in real estate

Currently, the housing market has effectively stopped its meteoric rise in prices and affordability. The average 30-year fixed mortgage rate hovers around 7% making affordability drop by about 1/3 of the prior year. Not only does this slow down the price of housing, but it also starts to revert to what the offering price and has homes coming in at a lower price than before. This is because it has switched from a seller's market, and now with increased inventories and the higher price of money, the real estate market is cooling off.

What it has done to investments in general

The rising interest rates are an attempt to stave off inflation. Unfortunately, inflation continues to be at record highs, with little to no signs of slowing down anytime soon. An overheated economy eventually will burst and lead to a recession. That means those that are seeing rising interest rates are assuming there's a recession on the horizon. This has had capital markets and stock markets take a pause and have had most of the key indices down this year by 20%-30%. This comes from poor financial results and investors pulling out to stay liquid when the recession hits.

How the individual is affected

The standard consumer sees not just rising interest rates affect their purchasing power, but also the overall cost of energy has skyrocketed due to the conflict in Eastern Europe. This has made budgets weaker, and the availability of savings and investments start to dwindle or not become possible at all, providing a perfect storm of them switching their discretionary funds to preserve them as there’s that uncertain economic outlook on the horizon.

What can be done?

Right now, the whole market looks as if it's contracting and heading toward a recession. However, that doesn't mean you should panic. Instead, it's about expertly navigating this economic winter and finding opportunities where they are. With steep discounts approaching for real estate and already realized in the capital markets, it's a great time to position oneself to be able to take advantage of this.

When you work with us, we'll help you by being your navigators and get you through this financial uncertainty. We work to monitor local and global economic factors and work to build out the right information and strategies for your investment needs.

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