May 2023 Market Overview
The real estate market has seen some difficulties, due to an additional quarter-point increase in interest rates by the Federal Reserve. However, some comments by the Chairman of the Fed, Jerome Powell, have hinted that further rate hikes may be on hold, leading to optimism among homebuyers that conditions will soon improve. That being said, the commercial real estate market has been struggling due to high borrowing rates, and the residential market remains constrained due to low inventory.
An End to Higher Interest Rates?
Comments from Jerome Powell, chairman of the Federal Reserve, have hinted that the latest increase in interest rates may be the last for some time. This is because inflation has started to slow down, reducing the necessity for higher interest rates to counteract it. This, in turn, could help bring the costs of borrowing down, incentivizing more people to take out mortgages.
Cautious Optimism From Home Buyers
There have already been signs that this may be the case, as the number of people taking out new mortgages increased by 5% in the first week of May. Refinancing also increased by 10%, a significant boost considering that applications for refinancing had fallen substantially compared to last year. However, home buyers remain cautiously optimistic about interest rates, as there is always the chance that further rate hikes might be announced in the future.
Trouble in the Commercial Real Estate Market
The commercial real estate market, on the other hand, is facing significant issues due to higher borrowing rates, compared to the residential real estate market. Many companies have been saddled with expensive office space that they are using far less of, compared to what they were prior to the COVID pandemic, which in many cases are cheaper now than when they first borrowed to rent or purchase the space. There is also a lack of demand for these spaces, which may mean some businesses will not be able to resell the properties for what they were once worth, leaving them with a substantial debt to repay.
Low Inventory Remains a Factor
In the residential real estate market, a lack of available inventory remains a serious issue that has helped to keep prices high. In particular, there is a lack of affordable homes available for low- and mid-income buyers, keeping demand for housing artificially suppressed. If more inventory becomes available on the market, that will be a boon for potential buyers, but could also cause the price for homes to drop significantly as demand begins to be met with a greater supply.
