Mortgage rates in 2022 hit a 20-year high, and that trend has continued into 2023. To help slow inflation, the Federal Reserve has continued to raise interest rates and, as of May 2023, the national average for mortgage rates has been around 6.8% (Bankrate). That number is up about 1% over this time last year.
So, what does this mean for the real estate marketplace? The situation is very similar to previous years in that it is still a seller’s market. This is largely attributed to the fact that the increased interest rates have caused availability issues with inventory. Even though it is a seller’s market and the prices of homes have increased, many homeowners whose interest rates are at or below 3% are hesitant to sell since their purchasing power to buy their next home is greatly diminished (Rocket Mortgage). This increased competition for properties has only served to further inflate home prices, as individuals are making offers over asking prices and waiving contingencies.
Increased pricing and minimal inventory in many desirable metropolitan areas are driving people to look elsewhere. Nearly half (49%) of survey respondents would consider moving outside of metropolitan areas where taxes are generally lower or even moving to less populated states where the cost of living is lower (Yahoo). In addition, having the ability to work remotely makes less populated areas more attractive to buyers; moving to an area with lower living expenses means individuals are able to purchase homes without as much competition. This trend has also impacted the property management marketplace. Increased demand in areas that have traditionally not seen the same population growth rates has also led to the need for more property management organizations to help keep up with the demand for primary properties, as well as vacation rentals.
Many real estate professionals are cautiously optimistic that the market will begin to normalize in the near future. Inflation seems to have been curbed, which could ultimately lead to a decrease in interest rates across the board. Lower interest rates coupled with people moving to areas outside of what they would normally consider means lower competition and a potential increase in inventory. However, real estate agents and property managers still need to be diligent in finding ways to stay competitive in the current marketplace.
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