Early in May 2023, we read an interesting post by Tony Cantu published in the MPA magazine[1]. Mr. Cantu interviews a Dallas based veteran lender who predicts that we will witness a transformation in the US real estate market “from a seller’s market to a buyer’s market some six months from now” (Mr. Cantu’s article is dated May 1, 2023). At AMI Lenders, one of Houston’s most reputed private money lenders, we think this topic is worth exploring because a shift to a buyer’s market would positively benefit our readers and/or clients who are currently in the market for a property -whether you are first time buyers, or are looking to improve or modify your current housing situation, or are looking into building up your real estate portfolio.
Seller and Buyer Markets
A seller’s market occurs when there are more homebuyers than sellers, which results in sellers having the upper hand during negotiations: “They will likely sell their place quickly, perhaps for over asking price, with a minimum of fuss or pushback from buyers”.[2] Buyer’s market, on the other hand, occurs when there are less homebuyers than sellers, so in terms of demand and supply microeconomic theory, the homebuyer will have some power over the seller which can result in a better deal for the buyer.
What type of market are we in right now?
As you probably already know, the US real estate market has been in a seller’s market for at least the past five years. Why? Mainly owing to very low mortgage interest rates, a chronic unresolved housing shortage, changes in lifestyles brought on by the Covid-19 pandemic, and other region-specific factors. As the Dallas veteran lender says during the interview: “People have been able to sell their home at top dollar, usually 20%, 25% above asking price because it’ a bidding war. And mainly it’s a bidding war because people could borrow money to buy a house at 2%, 3%.” This has been rather challenging for real estate investors, who have faced tough competition when bidding for a property.
And suddenly, the macroeconomic environment changed. Inflation reared its head as soon as the Covid-19 pandemic subsided, the Federal Reserve Board (the “Fed”) has raised interest rates continuously over the past year with the intention of controlling inflation, and consequently, mortgage rates have gone up past the 2% and 3% level into the 6% to 7% range. This hike in mortgage interest rates has reduced the number of homebuyers. Some experts, as mentioned in the above-quoted realtor.com article, have dubbed the current condition in the real estate market as “nobody’s market”. But that may soon change, and we could be transitioning into a buyer’s market towards the end of 2023.
On the other hand, a Forbes article advises homebuyers: “As we move through spring homebuying season, buyers and sellers remain at a standoff…. Trying to predict what might happen this year is not the best homebuying strategy. “Buyers sitting on the sidelines today in anticipation of lower prices tomorrow may end up disappointed,” says Neda Navab, president of the U.S. region at Compass, a real estate tech company.” [3] In other words, they seem to believe we are still in a nobody’s market and will be in it for some time before entering a seller’s market.
Should you wait for the market to evolve into a Buyer’s Market?
Remember what we always write in our blog posts: we wish we had, but we do not have, a crystal ball to predict the future. But, based on our decades-long experience leads us to believe that the structure of today’s real estate market will shift there will likely be less competition for real estate investment opportunities, giving way to somewhat better prices and more room for negotiating financial terms, and hopefully, better long-term investment returns for investors even in the face of higher mortgage interest rates. How fast will the market shift occur? We really don’t know.
If purchasing a property makes sense for you in today’s market in terms of your budget, your needs, and your likes, then you should invest in it. On the other hand, if you are stretching it, maybe you should wait a while longer, hoping for a buyer’s market to materialize as predicted by some experts. This will improve the chances of you finding a property that makes sense for you as stated above.
In either case, whether you have decided to purchase a property or, expectantly, have decided to wait for market conditions to turn in your favor, choose to consult with AMI Lenders as we are one of Houston’s fastest closers and could become your financial ally. We fund our own loans and can move as fast as the law allows. Borrowers in Houston will also have a hard time finding lower rates for hard money or private loans than those that we offer. We want our customers to succeed and take advantage of the financial opportunities offered by real estate investments. Visit our website today and fill out an application for a private money loan backed by a real estate property.
En AMI Lenders hablamos español, así que no dudes en contactarnos.
[1] https://www.mpamag.com/us/mortgage-industry/industry-trends/is-the-shift-to-a-buyers-market-underway/444406
[2] https://www.realtor.com/advice/buy/what-is-a-sellers-market/
[3] https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/
