If you’ve been keenly watching the headlines or even just the real estate market, it is hard to ignore that things are shifting.
Does this mean a real estate market crash is imminent? What will that look like? What are the best moves for investors?
Bracing For A Hard Landing
Even the Fed’s Powell has now admitted that navigating a soft landing is going to be tough. When you cut the wings off your plane in mid flight, that’s always a hard thing to do.
Soft landings for economies mostly seem to still be the stuff of fairy tales. Along with unicorns, and pots of gold at the end of the rainbow. Possible, but at least super rare.
The Fed has said they are unconditionally committed to cooling the economy, and may raise rates by yet another 75 basis points this month.
Of course, we typically first see a crash in the stock market, and a rush of capital to the safety of real estate before any weakening in the real estate market. Watch those other market indicators first.
Home Listing Prices
Analytics platforms and some industry outlets have noted that home asking prices are coming down in some markets. Some even by as much as 15%.
That sounds like a crash, right?
Well, in context, we are talking about a 15% cut in asking prices, not sales prices and values. This is in the wake of a record setting February and March, where real prices were up by 20%. Even 50% in some markets.
Along with fewer closed sales, and this reduction in asking prices, we may deduct that there is some moderation happening.
Markets do notoriously overcorrect when they change, but let’s be clear that we are not yet seeing any decline in real asset values.
Retail home buyer activity may certainly be moderating as well.
If you’ve listed a home in the past few weeks you may have noticed fewer showings and offers. People are still inquiring, but they are not moving as fast as they did a month ago.
Instead of homes selling in hours for more than already high asking prices, we seem to be slowly returning in the direction of a more balanced market.
A healthy market is when it takes homes an average of six months to sell.
So, we have a long way to go before hitting that point of supply and demand balance.
Meanwhile it is reported that renters are lining up for hours in some cities just to view tiny apartments that become available to rent.
Filtering The Players In The Market
One of the best things about this phase of the market is that it sends all the amateur speculators fleeing who were in it for quick and easy money.
Those that should really be in the business (who know what they are doing, really care about real estate, add real value, and invest intelligently) will be the few left standing.
They will find a lot better deals and more negotiability.
Where The Best Deals Are
As the market continues to evolve over the rest of the year, we can expect to see it evolve with different asset classes becoming less attractive, while others continue to reemerge as the best performers.
It appears that industrial and warehouse real estate may be among those suffering worse performance.
While rentals, multifamily, private equity investments, and some loan notes will offer a lot more value and return potential.
The market certainly has not crashed yet.
Without major manipulation or intervention, it does look like we are headed to a more balanced and healthy market.
Of course, that will eventually lead to an over correction. Though this could be some time off yet.
The good news is that for those who are prepared, and who are investing intelligently, there will be far better value opportunities coming up than we’ve seen over the past few years.
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