What are your predictions for the RE market? 6.5% interest rates

Glendale, AZ · Member since 2017 · 1k+ posts · 238 votes

Hi guys,

There was a great topic on the real estate predictions. I cant find it.

What do you think will happen with the real estate prices? Now the interest rates are 6.5% I see some prices are dropped may be 15K but still there is a very low inventory...In my area we have 3 houses for sale under 420K which is suuuper low. At a normal market I would expect about 20-30 houses for sale in that area

So, I because of that low inventory cant imagine prices dropping too much.

What do you think?

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

As rates increase, buying power goes down. I'm seeing more houses on the market, price reductions across the country, fewer new mortgages, etc. There are a lot of buyers that have been priced out of the market.

I predict we'll continue to see inventory grow and prices go down. I don't know if we'll see huge drops, but 10% or more seems reasonable. With fewer people buying, rentals will be in demand and we'll see rent rates increase.

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Jack Martin
Specialist · Scottsdale, AZ · Member since 2014 · 626 posts · 700 votes
4y
Predictions can be fun, but remember they are opinions, so don't base your investment decisions off of them. I suggest real estate investors look to history for guidance as it tends to repeat itself. Do yourself a favor and buy Philip J Anderson's book "secret life of real estate and banking" as it is IMHO the best book on real estate cycles. With that said, when you are considering an acquisition consider the following, regardless of the current interest rate environment:

1 - LOCATION - in a seller's market, resist the temptation to buy property in small markets - those can be the attractive "cheap" option, but when the market cycle ends, you will likely view that as a mistake and certainly will have a hard time getting out.

2 - CASH FLOW - unless you have a heavy value-add property where it could make sense to have negative cash flow initially, resist the temptation to buy property where there is no cash flow on the day you close. Many investors got caught up in the fervor of 2006-2008 and ended up with "feed the alligator" properties that ate them alive every month.

3 - THINK LONG TERM - nobody knows what the future will bring, so while it is fun to make predictions, it is dangerous to become attached to them. Resist the temptation to buy property with short term debt that you think you can refinance when the debt market gets better, because maybe it won't...seek fixed rates that don't require a refinance event for 10 years (or more) if you can. That way you have plenty of time to complete the value-add component and make intelligent decisions with respect to financing.

I tend to agree with the narrative @Chris Levarek shared, but again, predictions can be dangerous if you are basing your investment decision on them.

All the best,

Jack
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