Real Estate Insights: 4 Key Takeaways on the State of the Market

If you are a lender wondering about the state of the real estate market, there is a lot to be aware of in 2022. With little doubt that the economy is heading toward a recession, the real estate market will be affected in numerous ways. 

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If you are a lender wondering about the state of the real estate market, there is a lot to be aware of in 2022. With little doubt that the economy is heading toward a recession, the real estate market will be affected in numerous ways. 

From rising interest rates and a supply chain crisis to prices dropping in top markets and decreasing in secondary cities, the real estate landscape is constantly changing. The investors and lenders who can adapt to these changes are likely to come out ahead. 

Discover four critical takeaways about the of the real estate market as of Q3 2022. 

1. Home Purchases Have Dipped for the First Time Since the Pandemic

A combination of factors has led to the first dip in home prices since the pandemic in 2020. Among them, rising interest rates and continually increasing prices in a volatile economy stand out as the top reasons. 

Rising Interest Rates

Several times this year, the Federal Reserve has increased interest rates in an effort to combat inflation. The rate of inflation peaked at 9.1% this year. Boosting the insurance rate makes real estate less affordable, thereby decreasing demand. 

This contributes to a decrease in home purchases, because the real estate outlook isn’t as appealing to buyers. Home purchases were high during the pandemic because interest rates were still low, but new efforts to fight inflation have seen mortgage rates rising steadily. With recession looming in 2023, this trend is likely to continue. 

Nationally Increasing Prices in a Volatile Economy

The rising insurance rates combined with increasing national home prices makes buying difficult or impossible for many people. In addition to these factors, the economy is unstable, and with little positive outlook in the future, it’s no surprise that many buyers are waiting until the situation improves before making a major purchase.   

2. The National Average Home Price Continues to Rise

Although some markets – mostly large, highly-populated cities – have seen home prices begin to decline, they’re still on an upswing nationally. The US Census data shows that the national home average currently sits at $525,000 for Q2 of 2022, and they’ve continually increased along with inflation. 

Is there Cause for Alarm in the Real Estate Market?

A simple search for anything related to real estate will answer this question with a resounding “yes.” The majority of economists are predicting a major recession in 2023, and along with other chaotic events happening in the world, this is expected to have an impact on the sale and prices of real estate. 

While the national average home price continues to rise, there are signs that that trend may slow down or reverse in the near future. Most notably, large markets like San Diego and New York have already seen property values dropping in recent months. 

What Does it Mean that Local Markets Are Seeing Falling Prices?

In California, multiple markets that are typically thriving have experienced significant price drops. Home sales fell 14.4% from June to 295,400 which was the fourth consecutive month of decline. 

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This trend is spreading rapidly throughout the Golden State. Three of the five major sectors in California have seen sales drop by at least 30%. The same declining trend applies to condos and townhomes as well. Throughout California, home values are at the lowest they’ve been in months. 

Given that the national average home value is rising, the fact that large markets like California are seeing falling prices means the trend will continue to spread. It also means that other cities will become more appealing options as buyers search for affordable homes. 

3. Rising Mortgage Rates are Likely to Contribute to Lower Prices

Since inflation has reached record highs in 2022, the Fed has increased interest rates periodically in recent months. By raising the interest rate, buying becomes less affordable and demand is expected to fall. 

As mentioned, markets like California are struggling, but it’s important to note that their prices were far above the national average in the first place. Throughout the country, expensive markets in major cities are the markets where home purchases are showing a decline. 

Throw in the increasing interest rates, and buyers are far less likely to make a purchase. Even if they can afford a home in an expensive market, many buyers will be tempted to rate until the mortgage rate goes down before making a major purchase. 

4. Second Tier Cities Will Grow and Gain Popularity

With markets like California seeing the lowest rate of home purchases in months, other, less populated cities are likely to see an increase in growth. 

Which Secondary Cities Are Poised for Growth?

While cities like Austin, TX have been in a state of growth for years, others like Raleigh, NC and Sarasota, FL are joining the list of secondary cities that are rapidly growing in 2022. 

As people continue to grow their families, they’ll have a high demand for a home in a nice area. As major cities continue to outprice the middle class, secondary cities will become all the more viable for home buyers who are looking for reasonable deals on a quality home.  

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