The housing market has seen record growth over the last two years. However, current data is showing signs that inventory may be slowing down. In recent weeks there has most definitely been a decline in new listings. So, what does this mean for real estate investors?
The slow in inventory growth could be a supply and demand issue caused by the increase in mortgage rates. Higher mortgage rates make it harder for buyers to afford homes, resulting in a decrease in demand. This is causing fewer sellers to list their homes, triggering less available inventory.
Inflation is likely impacting the slowdown of inventory as well. Inflation means money isn’t going as far and people are unable to come up with a large enough down payment to borrow money. This decreases the buyer pool and increases the population of renters entering the market.
There is a large lack of predictability with regards to mortgage rates and inflation, leaving buyers and sellers uneasy. Many people are choosing to wait and resort to renting in the meantime.
Slow Growth Is Still Growth
It’s important for investors not to get discouraged by a slow down in inventory. In fact, this could be very advantageous for investors that are willing to practice patience. The recent hot, frenetic market was a great time for investors to make fast money, but any experienced investor knows that that type of market was not sustainable. Inventory is slowing down to normal levels, which means opportunities still exist, but investors will need to allow for more time to experience typical returns. Inflation means home prices are rising and properties are appreciating, therefore, renting and holding onto a property can provide slower, but excellent returns.
Seasoned investors should be reminded that real estate can be used as a hedge against inflation, specifically with single family rentals. In this particular market, as rents rise along with inflation, the cash flow for property owners increases making single family rentals a great option for investors. Similarly, the rise in mortgage rates will increase the demand for rentals as buyers get forced out by lack of affordability. Even in this fluctuating market, single family rentals prove to be a relatively safe investment.
Regardless of how you choose to invest in today’s market, opportunities still exist. Keeping up with trends and data can help you determine the right investment for you, even in a rather unpredictable market. Connect with an industry expert from CALCAP Lending to discuss your options for financing!