Habitat Market Overview June 2023
The real estate market is in an unusual place at the moment. Interest rates have begun to fall, but mortgage demand has remained mostly flat for residential buyers. Inventory still remains low, with home builders still unable to meet demand for new housing. Meanwhile, the commercial real estate market is in flux, with some fearing that a downturn could be coming in the near future.
Interest Rates Fall For Three Weeks Straight
The interest rate for 30-year fixed rate mortgages steadily declined for three straight weeks in June, from 6.79% on June 1 to 6.73% by the end of the third week of June. This decline in mortgage interest rates is attributed to a more conservative approach from the Federal Reserve that has kept interest rates from going up more than they have. However, this policy could change depending on the level of inflation and the state of the labor market.
Mortgage Demand Remains Flat
Despite mortgage rates declining slightly, demand for mortgages remains mostly flat, with many prospective buyers holding back. This is due to a number of factors, including prices for housing remaining quite high, as well as mortgage interest rates being substantially higher than they were even a year ago, when interest rates were below 6%. Refinancing also remains low, due to how many people are holding onto properties that were purchased when interest rates were at lows of 2 to 3%.
Low Inventory Continues to Plague Residential Real Estate
Low inventory also continues to be an issue in the real estate market, particularly among more affordable housing. While some home builders have expressed optimism about the market, many of these builders are focused on constructing more profitable luxury homes, rather than the desperately needed affordable housing. As a result, even those looking for a new home may find themselves priced out of the market.
Problems in the Commercial Real Estate Market
If there are issues in the residential real estate market, then things are substantially more troublesome in the commercial real estate market. Many companies are holding onto large offices they no longer need due to the increased prevalence of work-from-home policies, and with the overall failure of forcing workers to return to the office, many companies are looking to sell some of their offices. Without many prospective buyers looking to purchase that space, however, sellers are often forced to take deep discounts on their sales, even for property that was once considered prime real estate. As a result, economists are watching the commercial real estate market with some trepidation.
