As a seasoned Real Estate Broker with Avant ONE Real Estate, often finding myself wishing for a predictive lens into the future of the housing market - a Housing Oracle, if you will.
Housing markets frequently serve as reliable barometers for economic activity, offering insight into forthcoming trends in various sectors. The repercussions of significant shifts in the housing market tend to ripple out, influencing other markets.
The housing sector took the first and harshest blow with the dramatic hike in interest rates. Ideally, the Federal Reserve should have initiated a gradual increase in rates as early as 2021 to counteract the inflation primarily fueled by COVID-induced spending, overwhelming demand, limited supply, and global supply-chain disruptions. Following intense periods of price inflation - such as the sharp surge in home prices we observed between 2020 and 2022 - deflation often ensues. This pattern is becoming evident in several parts of the US and globally, where home prices are seeing a downward trend in 2023, predominantly in areas with seemingly exorbitant price increases.
Interest rate hikes by the Federal Reserve had a domino effect, hitting the banking sector and various other economic components, following their initial impact on housing. As such, housing served as our predictive lens into forthcoming economic trends. We are now witnessing a significant decrease in the valuation of certain assets, notably office buildings in certain regions.
If we consider housing as our dependable economic compass, what signals can we pick up about future trends? Here are some possible scenarios:
Deflation could become a reality in numerous sectors, except for those with high demand and low supply.
In contrast, areas with high supply and dwindling demand could see probable deflation. For instance, certain luxury goods, including cars, are oversupplied, leading consumers to hold back, thereby triggering deflation.
Adjustments to new norms usually take consumers a few months. This can be expedited when forced to adapt quickly to changes like digital signatures, virtual home tours, and acclimating to higher interest rates. This "new normal" also influences sellers' expectations.
Business models that hinge on sustained hyperinflation, much like the housing sector, may stumble.
Deflation is a potential outcome where manufacturers or suppliers have capitalized on consumers' increased spending capacity by implementing excessive profit margins. When consumers reach their financial limits and pull back, prices will need to adjust downward, mirroring the trend among home sellers.
Rapid expansion in the housing sector has led to elevated local taxes, notably real estate taxes, limiting disposable income and purchasing power. Infrastructure is costly but vital for growth.
When home ownership becomes excessively costly, people opt for renting instead. In broader economic terms, this translates to a decrease or shift in spending towards more economically viable alternatives.
In closing, it's crucial to remember that the housing market, much like the rest of the economy, is a dynamic entity. The shifts and turns it takes often serve as a harbinger for broader economic trends. As we navigate these unprecedented times, let's remember to adapt, stay informed, and most importantly, keep an eye on our Housing Oracle.
Now that you have some insights into the future, it's time to make your move! Whether you're considering buying, selling, or simply staying put and watching the trends unfold, your decisions matter.
Reach out to us at Avant ONE Real Estate - we're here to help you interpret these signals and make the best choices for your future. Our expertise and in-depth understanding of the market can be your guide in these fluctuating times. Stay tuned to our blog for more updates, and remember in real estate, as in life, being well-informed is being well-armed.
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