High mortgage rates! Low inventory of new homes! Increased property prices! In short, these “bad boys” navigated the apathetic US housing market onto rough waters in the middle of 2023. However, these events shouldn’t surprise anyone! Like any other market, the American real estate market experiences periods of growth and contraction. These downturns, or market corrections, can intimidate buyers and investors. Still, they can present unique opportunities for a few intelligent individuals to make profitable investments.
Let’s investigate what a housing market correction implies!
Before exploring the best creative strategies, we should examine a market correction. Is it different from a recession or a market crash? A correction occurs when the housing market has to balance property prices because transactions have reached a standstill due to unaffordable expenses.
We’re looking at a short-term decline in property values, typically up to ten-twenty percent from the peak prices. As with any real estate cycle, housing market corrections bring advantages and disadvantages to the table. One of its key pros is bringing the market back to more sustainable levels.
Take real estate matters into your own hands!
Many market specialists predict the advent of a housing market correction in the near future. However, concerned parties should take such predictions with a pinch of salt.
Suppose you wish to buy a new home or become a real estate investor in 2023. Instead of waiting for an unforeseeable price correction to happen, act now! Why don’t you benefit from the most topical and reliable regional housing news and investment tips? We suggest you contact top-tier local real estate agents!
Why is it so hard to get by in today’s real estate market?
Generally speaking, the nationwide housing market remains competitive (but mind you that the activity is weak.) High mortgage rates, robust demand, and tight inventory characterize the US real estate market in mid-2023.
The lack of homes for sale is partially due to those homeowners who purchased properties at a record-low interest rate (during the pandemic) and now don’t wish to sell. All these lead to an affordability crisis putting eager homeowners on hold.
None other can be a greater buzzkill than high mortgage rates!
Fears of globally increasing inflation, recession, and constantly (and somewhat unpredictably) growing interest and mortgage rates discourage investors and new homebuyers from any considerable investments. The central bank is bent on reaching the two-percent inflation target by any means necessary.
For this purpose, the Fed adopted the interest rate hike policy, i.e., they made borrowing money extremely costly. It goes without saying rising interest rates were a massive letdown for home buyers and investors as well. Remember that mortgage rates are above six percent, between 6.5 and seven percent (without the hope of lowering soon.)
Did the housing market correction start yet?
To a certain extent, the housing market correction started in June 2022, which knew the highest property prices in the last decade. According to the National Association of Realtors, the average median home sales price was about $414,00. Data shows, however, that the price decline stopped in January 2023.
For this reason, we can’t speak about a universally applicable national trend of rising or falling prices. Property price corrections are highly region-specific. For example, prices grew in the Northeast and Midwest while they dropped in the West.
Why shouldn’t you put your hopes in a housing market correction?
Redfin reported that about 91 percent of American borrowers have mortgage rates below six percent. At the same time, approximately 82 percent “enjoy” rates below five percent. In other words, instead of rushing into a property sale and risking getting higher mortgage rates, most current homeowners will hold onto their present advantageous rates. In addition, sellers won’t budge on price. Thus, the for-sale inventory is expected to remain low.
On the other hand, new home sales (single-family units) have boomed lately (more precisely, twelve percent between April and May 2023). Paradoxically, the median existing home sales price rose to $396,100, according to the National Association of Realtors (NAR). And for now, all parties are okay with this stalemate situation.
Let’s get this ship on rough waters safely with buyers and sellers!
How should aspiring house hunters proceed? We recommend buying a property depending on your budget and needs rather than waiting for considerably cheaper pricing. Suppose you discover a home for sale you like in a decent neighborhood that, ideally, meets your budget. In that case, don’t wait and speculate how an eventual housing market correction would play out. Instead, go all in!
Moving to lower-priced areas is an excellent option to explore if you desperately want a house and can work remotely or switch jobs. In addition, assess your financial situation, improve your credit score, and shop for mortgage offers! Constantly check property prices and new listings because pleasant surprises can happen soon!
Secondly, it would be best for property sellers to work with an agent to get their pricing right! Then, they should take action sooner rather than later to prepare their homes to sell. Implementing home upgrades is a must! A winning tip is to include a 3-D virtual home tour in their listings!
If you’re a striving real estate investor during a housing market correction, you’ll want to know this!
Do you see an opportunity rising at a given place? Then, take the time to study the local real estate market in-depth and consider historical price trends and the region-specific supply and demand dynamics. Investigate to what extent will the local economy thrive in the upcoming years, the job market, the unemployment rate, and population growth!
We would look for neighborhoods with excellent infrastructure, proximity to job centers, good schools, and access to amenities. These factors can help maintain property values even during a correction.
Real Estate Investments 101 are long-term projects, and timing the market is incredibly tricky. Secondly, having considerable cash reserves can give you an edge over your competition. A seller will always prefer a full down payment to mortgage-based offers.
Spreading or diversifying your investments across different property types and locations during a market correction can reduce overall risk and lessen an eventual correction’s impact. For example, you might consider diversifying between residential and commercial properties or urban and suburban markets.
Final thoughts
Investing in real estate during a market correction shouldn’t be appalling. It needs careful planning, research, and a long-term perspective. And it also involves much field- and legwork.
The three golden rules are: analyze local market conditions, diversify your investments to reduce risk and keep cash reserves. Patience is key: focus on the long-term potential of your properties. By employing these strategies, you can successfully navigate the market correction and build a resilient real estate portfolio. Always consult with real estate professionals and financial advisors to make well-informed decisions!
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