Interest rates went from under 3% to over 7% (20 year high) in just a few months, put the real estate market to a halt. One more rate increase is expected by end of year, but not expected to be another .75 increase.
According to Lawrence Yun*, rates will ease and may go lower than 6% sometime next year. Prices could appreciate mildly next year, though real appreciation would be negative if there continues to be inflation. Yun thinks the worst of inflation is over, we are turning a corner. Supply will continue to be slim. Markets most likely to be affected by interest rates are entry level and luxury properties.
* (Lawrence Yun is the chief economist of National Association of Realtors - NAR)
The sharp increase in rates affected the real estate market and consumer confidence, 63,000 contracts blew up in July nationwide. (That's 1 out of every 5 deals fell apart). 64,000 in August, 60,000 in September, and 60,000 in October. Similar number is expected to come out for November. Agent competency is so critical when market goes through turmoil. 70% of realtors have never worked in a normal (down) market. NAR expects 200,000 less members by end of 2023.
There has been consistent out flow of population leaving California. In the bay area, San Francisco county had the biggest drop in population since July 2021 to July 2022, 6.3% drop. It’s believed to be mainly due to a decline in the tenant population – tenants (paying the highest rents in the U.S.) either lost job or move to work remotely. The flow should reverse somewhat after the flu season when employees are expected to go back to the office.
It's understandable there would less foreign buyer activity during Covid. Foreign buyer activity was over 5% (of unit sales nationwide) in 2017 down to under 2% in 2022. Top state destination is Florida 24% (of unit sales nationwide from foreign buyers), followed by California 11%, then Texas 8%.
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