Home Sales slowing down with rising Interest rates

Multi-Family and Apartment Investing
4yFollow

Home Sales slowing down with rising Interest rates

William Costello
Indianapolis, IN · Member since 2021 · 193 posts · 150 votes

Existing home sales dropped in April for the third month in a row, slowing to a pace not seen since June 2020. 
A decline in demand was expected as interest rates climb and sky-high home prices continue to rise. Economists say the trend will likely continue. The inventory of unsold homes on the market also jumped in April to 1.03 million units. That's up 10.8% from the month before and down 10.4% from April 2021. How do you think that will effect the investment apartment community going forward? 



0Reply
23 views

Most Popular Reply

Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y
Quote from @William Costello:

Existing home sales dropped in April for the third month in a row, slowing to a pace not seen since June 2020. 
A decline in demand was expected as interest rates climb and sky-high home prices continue to rise. Economists say the trend will likely continue. The inventory of unsold homes on the market also jumped in April to 1.03 million units. That's up 10.8% from the month before and down 10.4% from April 2021. How do you think that will effect the investment apartment community going forward? 




The drop in existing home sales is not due to rising interest rates, its due to no homes for sale.

Unsold inventory may have jumped, but means absolutely zero in this low inventory environment.  For perspective, a normal market in say April 2015 had 4 million homes for sale. 

This is why it is important to understand the actual numbers and to look past sensationalistic headlines.

[email protected]301-893-4635Podcast Guest on Show #192
District Invest Group546 Reviews
WebsiteView Page
6Reply
See this reply in the discussion

15 Replies

Jump to latestLatest
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @William Costello

    It's been an interesting year for sure. In January, I decided to focus on growing my business in the direction of more MF 5+ loans, well before the rates jumped and the markets turned. I have seen nearly a complete swap in my business blend. 2021 was primarily refinances; cash outs or portfolio consolidations mostly. My overall business was 78% Commercial/Investment Loans versus 22% Residential lending. This is simply due to me focusing more on the non-primary residences and growing the other side of the business last year. Of that that 78%, 22% was SFR, 65% 2-8 Unit, and 13% 9+ Units.

    This year is a whole different mix due to demand and the markets. On pace this year at 5% SFR, 26% 2-8 Unit and 69% 9+ Units. This is a combination of both returning and new clients for me. An almost perfect swap of refi to purchase as well. I am doing very few refis these days, unless they are BRRRR investors coming off the HML going to permanent financing. Those are the majority of the refis I do. I've been servicing mostly purchases for all of 2022 so far.

    Last year, I felt that growing the 9+ Unit business was going to be tougher and the demands were quite a high.  I chose right at the end of 2021 to switch gears a bit in 2022.  The nation's overall existing home sales may be dropping, but my business is growing steadily and many of my investors have switched to focus on scaling into MF 5+ in general.  To answer your question, yes, I think many investors are seeing better opportunities in Apartments, Communities, MHP, or even neighborhoods.  Both new construction and existing.  The lenders and brokers in my network were speaking about how we are seeing more $20MM+ deals this year than we've seen in a long time...  

    As one market slows, investors will find another place to invest... they will jump from one thing to the next.  I'm already planning for another shift by the end of the year or early next, but we'll see.

    Cheers!

    [email protected]
    Belsky Mortgage, LLC527 Reviews
    WebsiteView Page
    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y
    Quote from @William Costello:

    Existing home sales dropped in April for the third month in a row, slowing to a pace not seen since June 2020. 
    A decline in demand was expected as interest rates climb and sky-high home prices continue to rise. Economists say the trend will likely continue. The inventory of unsold homes on the market also jumped in April to 1.03 million units. That's up 10.8% from the month before and down 10.4% from April 2021. How do you think that will effect the investment apartment community going forward? 




    The drop in existing home sales is not due to rising interest rates, its due to no homes for sale.

    Unsold inventory may have jumped, but means absolutely zero in this low inventory environment.  For perspective, a normal market in say April 2015 had 4 million homes for sale. 

    This is why it is important to understand the actual numbers and to look past sensationalistic headlines.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
    WebsiteView Page
    6Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    But @Russell Brazil. That’s not scary, and only scary news makes headlines. :-). I’m sure all these articles are being written by people who not only had dozens of investment properties in January (not just journalists with zero investing experience) and they have sold ALL their properties in the last month because they believe what they’re saying. 

    Heck, there are people who wrote “the crash is here!!!” In 2012 still waiting to jump up and yell “I called it first!!” When it finally comes. As long as their remains zero penalty for being wrong 100 times in a decade and never right, scary headlines will rule the news. 

    We don’t need “the good news network”. But how about a dispassionate informational network?

    4Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    High home prices and rising rates will buoy rental demand.

    4Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    4y

    I believe rising interest rates will be part of the reason we have a downturn.  The Fed needs to engineer a recession to decrease inflation.  Housing is already unaffordable for most people which means these levels would be difficult to sustain without perfect financial gimmickry.  Interest rates, gas, commodities all up it is hard to see how real estate specifically and all asset prices in general continue to climb.  If the market was allowed to work itself out prices would crash (I believe).  I personally think we will get a taste of that and then the Fed will chicken out and drop the interest rates again.  That will be great for guys like me and terrible for people starting out trying to accumulate wealth start families etc.  

    1Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    So I’m already hearing talk about the fed lowering rates next year after they “fix inflation”

    It seems like there are two options. They don’t fix inflation and everything, including home prices continue to sky rocket. Or they do fix inflation and interest rates are lowered. Does that lead to another round of skyrocketing prices? 

    Let’s say there is a “crash” the second largest in history, a 10% price drop, all the way back to prices 6 months ago. Does anyone truly believe the people that are afraid to buy today will suddenly become buyers at prices down 10%? Or will they wait until prices come back up another 10-20% and start posting about the “next, next crash”. 

    Many of these people didn’t buy at prices 50% lower than today 4-5 years ago when prices were going up and interest rates were in the 2’s. But now they’d be chompin’ at the bit to pay 10 or even 20% lower than today’s prices as they were dropping and rates were 5 or 6%? I just don’t believe it. 

    4Reply
  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    4y

    It's going to quickly cool off the housing market in different sectors. I am seeing it locally. I have multiple listings and they've gone quiet simultaneously at various price points. You'll always sell residential stuff because people need a place to live but IMO realtors (and more importantly owners) will need to adjust their pricing because people are still going to want to sell homes like it's a 3.5% rate environment when it's currently a 6% rate environment. A lot of residential owners also are unlikely to want to sell their house that they have a sub 4% rate on, to sell it and buy something else at 6%. JMO. 

    [email protected]732-289-3823
    3Reply
  • Matt Groth
    Contractor · Grand Marais, MN · Member since 2016 · 249 posts · 417 votes
    4y

    @Russell Brazil the only homes in my market for sale are champagne prices for a beer house, and currently there are only 2 of those. Anything of quality is gone in under a week, for over ask, sometimes by a lot over ask. The bulk of our buyers are paying cash, so the rate is irrelevant

    2Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    4y

    Fundamentally it's all driven by supply and demand, everything else is just noise. People need a while to adjust to new norms - nobody was shocked about a 6% mortgage 10 years ago. Now we have sticker shock and we are seeing a slow down in the market, but that trend is shallow, temporary and very relative: if you go 160mph and you you slow down to 120mph, you are still going twice normal speed!

    3Reply
  • Tanner Connelly
    Lender · Member since 2022 · 50 posts · 33 votes
    4y

    The market is seeing a variety of things that are leading to a softer buyers market. Buyers fatigue, higher rates, lesser amount of sellers, inflation.  To pinpoint just rising rates, we have to look at the bigger picture. I think we will have a strong buyers market in the coming months as things are shifting on the fed level. 

    2Reply
  • Brian Ellis
    Rental Property Investor · South shore, MA · Member since 2017 · 1k+ posts · 1k+ votes
    4y
    Quote from @Peter Tverdov:

    It's going to quickly cool off the housing market in different sectors. I am seeing it locally. I have multiple listings and they've gone quiet simultaneously at various price points. You'll always sell residential stuff because people need a place to live but IMO realtors (and more importantly owners) will need to adjust their pricing because people are still going to want to sell homes like it's a 3.5% rate environment when it's currently a 6% rate environment. A lot of residential owners also are unlikely to want to sell their house that they have a sub 4% rate on, to sell it and buy something else at 6%. JMO. 


     My thoughts exactly. Most Agents can’t comprehend higher rates = less buying power. I still see houses coming on the market at a price that was relevant 6 months ago. 

    0Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    A couple of articles on possible outcomes for housing prices based on historic data analytics.
    What will Happen with House Prices?
    https://calculatedrisk.substac...

    Article above on what will happen with housing prices: slow, stall, and bust. Conclusion: "The data seems to argue for the slow house price growth scenario, but my view is the most likely scenario is house prices will stall in nominal terms and decline in real terms."

    Housing: Don't Compare the Current Housing Boom to the Bubble and Bust
    https://calculatedrisk.substac...

    Conclusion: "...we should expect something similar to the what happened in the late ‘70s - a decline in real house prices seems likely, and I also expect some decline in housing starts and new home sales. With solid lending, nominal prices should be sticky downwards, and I don’t expect national declines in nominal prices."

    3Reply
  • Bob Metry
    Member since 2020 · 62 posts · 46 votes
    4y

    I don't think it is accurate to say mortgage interest rates used to 10%, 15% or whatever much higher rate than they are today and that people still purchased homes. Sales prices were and eventually will be adjusted to the relative value/affordability to the buyer in coordination with interest rates. 

    2Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y
    Quote from @Bob Metry:

    I don't think it is accurate to say mortgage interest rates used to 10%, 15% or whatever much higher rate than they are today and that people still purchased homes. Sales prices were and eventually will be adjusted to the relative value/affordability to the buyer in coordination with interest rates. 


    Agreed, it's not the absolute rate that matters, it's the % change in the rate, particularly when you factor in inflation adjusted home prices more than doubling in the past 10+ years (after having little increase in the previous 40 years from 1970 to 2010).

    1Reply
  • Mike Dymski
    Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    4y

    Article below on the amount of incremental income needed to purchase a home at today's prices and rates compared to recent years.  Mortgage payments are increasing ~$500-$1,500 per month depending on price cohort.

    https://www.redfin.com/news/ho...

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free