Talking Real Estate and How Interest Rates Affect Home Prices In This Economy
August 30, 2022
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Darrin Cohen, and I am the CEO of Wealth E&P.
After a nice rise in the markets from the middle of June to the middle of August, we saw a pullback in the last few weeks. In particular, this can be attributed to all of the talks of a weakening economy and continued inflation that they’re trying to get in check. The markets are at an inflection point today; it’s trying to decide which direction it wants to go in and is somewhat battling itself. On a related note, I want to talk about real estate today.
Some facts and figures above may not surprise you, but this is helpful and depicts what we’re seeing overall. Since January 2022, we’ve seen existing home sales decrease for 6 months straight.
Not surprisingly, this is associated with a significant rise in interest rates, as you can see above. After interest rates held steady at 2%-3% for an extended period of time, this caused home values to go up 40%, 50%, or even 60%. Now we’re seeing rates at 5% or 6%, and this will probably continue to rise and affect the cost of homeownership.
With that has come a decline in home values in the last month or two, as you can see in the chart above. We do expect that to continue, but the question we’re being asked is: is it going to be a soft landing, maybe a gentle 3%-10% pullback, or will be something more significant? There are two schools of thought here. I do think that interest rates are probably going to continue to go up and cause home prices to come down significantly. As I mentioned, there is a housing bubble with prices having gone up so significantly.
Probably the biggest food for thought comes from a company called Blackstone. Blackstone is the largest real estate investment firm in the world and manages billions of dollars; they really are some of the smartest on the street when comes to real estate. For your information, they have set aside $50 billion to take advantage of what they think is a pending housing market crash; they’ll be able to jump in and take advantage of those discounted prices.
With that, the action item is: if you’re thinking about selling your house, it’s not too late. I might call a real estate agent right now and ask them any questions you have and see if it’s the right time for you to put your house on the market. If you have any questions about this topic or the economy, if you want a risk profile, or if you would like a retirement projection, please feel free to reach out, visit www.wealthep.com, or give us a call at (678)-739-0175. Otherwise, stay tuned for our Market Minute next week!
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