Over the past two years, historically low-interest rates and heightened demand have driven the real estate market to unprecedented heights. However, as the saying goes, what goes up must come down. Inflation, interest rate hikes, and general economic volatility are all contributing to an overall cooling off in the housing market. While this potential market correction—when values fall 10% to 15% below the market average—should be expected to affect housing at every price point, it’s generally felt first in the luxury housing market. Therefore, if you’re looking ahead to what might be in store for lower-priced homes, it pays to take a look at what’s happening at the top of the market.
Reading the Signs
What are some indications that it’s no longer so aggressively a seller’s market in real estate? The inventory of active listings is growing, and the time those listings stay on the market is creeping upward. Where a year ago particularly attractive listings might have attracted multiple offers at the above-asking price and waived contingencies, now offers are more likely to be negotiated, and price adjustments may be necessary. This is especially evident in higher-priced properties.
An important thing to note is that the current market is not like that of the 2008 Great Recession when poor lending standards helped to fuel the financial crisis. Then, a wave of foreclosures flooded the real estate market, driving down prices. Stricter loan approval processes put in place since then make it unlikely that such a scenario could occur again. The situation now is not one of supply out of proportion to demand, but instead a combination of factors limiting the buying power of potential purchasers.
What Is Driving Softening Demand?
The real estate market has been significantly overheated in recent years, with not nearly enough housing available to meet demand. Low mortgage interest rates gave buyers at all levels more purchasing power to enter the housing market or to move up to a larger home. This increased competition for a limited supply of available properties drove up prices.
High asking prices were already beginning to price some people out of the market, but that hasn’t necessarily been the most significant factor in the recent dip in demand. First, mortgage rates have rapidly risen to levels not seen since 2002 in response to repeated interest rate hikes by the Federal Reserve. At the same time, there have been significant declines and volatility in the stock market. The combination of more expensive borrowing and personal economic uncertainty is certainly causing many to rethink possible purchasing plans.
Under these circumstances, owners are likely to reconsider whether it is necessary to sell now and postpone listing if it’s not. This should continue to keep supply at reasonable levels and lower the prospects of a precipitous decline in the housing market.
Real Estate and Estate Planning
When economic changes are in the wind, it can be a good time to take a close look at your current financial situation before making any serious moves. This includes thinking through estate planning, whether you’re putting an estate plan in place for the first time or reviewing a trust that will create some time ago. Real estate holdings often form a large part of the assets an individual has to pass on to their heirs, even if the only property they own is their primary residence. A well-designed estate plan can ensure that these assets are protected and passed down as you wish while minimizing potential tax liability.
If you want to avoid probate and save your heirs from unnecessary delay and expense, expert legal assistance is essential for creating a plan that effectively uses the legal tools at your disposal to accomplish your planning goals. The experienced estate planning attorneys at NM Law have the background and expertise to craft an estate plan that will meet your needs. To find out more about our estate planning services, contact us here today.