This past month has seen a substantial amount of uncertainty in both the residential and commercial real estate markets. On the whole, the market has continued to suffer from high interest rates and limited inventory, which has kept sales substantially lower than they were at the same time last year. However, homebuilders seem optimistic that this could be changing, as contracts for new construction are coming in more frequently.
High Interest Rates, Low Inventory
The real estate market has had two persistent problems for much of the past year, which continue to plague the market and hinder home sales: high interest rates, and low inventory. The Federal Reserve began raising interest rates last year as a means of combating inflation, which has caused interest rates for 30-year fixed interest loans with conforming loan balances to rise and remain above 6%. At the same time, home sales have suffered from a lack of available properties to buy, due to a lack of existing homes being placed on the market, along with a lack of new construction to satisfy existing demand.
The Failure of “Return to Office” Policies
Commercial real estate has not been in a much better position than residential real estate, however, due in large part to the failure of “return to office” policies. Many large businesses have contracts on large office buildings that have remained mostly vacant since the pandemic began three years ago, with most of their employees working from home. While some businesses have tried to force employees to come back to the office, workers do not seem eager to resume their daily commutes, leaving companies with large commercial buildings that remain mostly unused. This has led to fears that these office buildings will go on the market in the near future as businesses try to divest themselves of their holdings, resulting in a glut of office space that no one wants.
Causes for Optimism From Homebuilders
That being said, not all of the news from the real estate market is dire. Homebuilders seem cautiously optimistic about the future of the market, as contracts for new construction have slowly ticked up. This may be a sign of a potential turnaround as more houses go on the market, helping to address issues with limited inventory and helping to spark demand among prospective homebuyers.
