Is the U.S. Housing Market About to Collapse in a Heap?
Key takeaways
- The housing market slumped further in spring, with existing homes sold in April falling to their lowest levels since 2011
- Mortgage rates are now at 6.79%, a seven-month high as fears of a recession linger
- Best approach for real estate investors is to diversify now before any fall in house prices happens
After a pandemic-fuelled home-buying boom, housing isn’t looking so hot right now. With higher mortgage rates and a chronic housing shortage leaving would-be sellers staying put and buyers with limited options, it’s left investors speculating a crash is coming — especially as talks of a recession persist. We’ve got the outlook below.
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What’s the latest about the housing market?
New data shows that the spring, usually a good selling season for the housing market, was instead pretty dire. The National Association of Realtors reported existing homes sold in April at a seasonally adjusted annual rate of 4.28 million — the lowest rate since 2011.
Mortgage rates have also added significantly to the cost of buying a home. The average new mortgage rate in the U.S. is now sitting at 6.79%, the highest since November 2022, as the markets priced in another Fed interest rate hike.
Not to mention the inventory issue, which is keeping home prices relatively buoyant despite the Fed’s efforts to cool inflation. By the end of May pending home sales had fallen 17% from the year before, signaling would-be homebuyers and home sellers are pretty much forgetting about moving any time soon.
What does it mean for investors?
Real estate investment trusts (REITs) haven’t been doing amazingly this year, with the Dow Jones Equity REIT Index down 1.5% in 2023 and the S&P U.S. Equity All REIT Index falling by 1.9% in the same period.
A housing price crash isn’t what any investor wants to hear, but we could be in for a grim reality in the coming months if the above trends continue. For any investors with real estate investments, it could be a difficult time if you want to sell the assets as they may have dropped in value or even be worth less than you paid.
If you’ve traditionally relied on real estate for your portfolio returns in the past, the best option is to begin diversifying your investments. Putting funds into different asset classes like stocks, bonds and ETFs can help weather the storm should the housing market drop in value (and AI investing can help simplify the process).
The bottom line
The housing market is full of contradictions at the moment, with a housing shortage pushing up existing home prices while high mortgage rates put off would-be buyers at the same time. We could soon see a drop in house prices if the economy tips into a recession, which isn’t great news, so real estate investors should buckle up for a bumpy ride.
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