Vulnerabilities are appearing in the real estate market and it’s possible that a top in pricing has happened over the last month or so. Existing home inventory is starting to accumulate and new development is uneven. Mortgage rates have climbed to the highest level in seven years causing an affordability problem for many potential buyers. In addition, there seems to be a crack in the pricing of luxury and high end segments in both the national and international markets.
Part of the problem is that home prices have been trending much higher than the inflation rate. This is not a normal trend and last occurred during the past market peak around 2006. It is not as high as then but this is a dangerous sign. The deviation cannot continue much longer. Balance must be restored with either higher inflation or lower prices. If inflation is still rising, the Federal Reserve will raise rates. That will put a damper on prices as mortgage rates go higher.
Interestingly, there is still a possibility of lower rates. This is not likely but there could be a final round of deflation forthcoming. In that event, it would not benefit real estate as it would be part of a weakening economy.
It’s still a seller’s market but prices appear to be softening. If you are buying for a long term home, you will probably be fine although you could be patient at this point. Otherwise, this is not the time to speculate in real estate.
It is very important to understand that real estate is becoming more of a political investment and less an investment in land. Climate change has only begun to be priced into the market and the politics surrounding that trend will likely be negative for real estate in many markets.