Is the Real Estate Market Ready for a Correction?
While the real estate market is poised for a cooling phase, a major correction is unlikely. The market is set for a reasonable adjustment rather than a drastic plunge. Factors such as steady interest rates and pent-up demand suggest a more stabilizing trend rather than a downturn.
Signs of a Softening Market
In the last decade, the real estate market has seen a series of time and price corrections, particularly influenced by the COVID-19 pandemic. The upward trajectory of interest rates may eventually meet the pent-up demand that has been building up over the past few years. This is one of the reasons for the revival of construction projects and positive results from real estate companies. Additionally, with many individuals having saved and invested in equity during the periods of remote work, the current funds are likely to be redirected towards buying homes or other real assets.
Moreover, migrant laborers are expected to return to urban centers, seeking employment in construction, which can further fuel the market demand. However, this influx may not lead to an immediate correction, as sellers are still optimistic about their properties.
No Immediate Need for a Correction
Some argue that no correction is needed, given that houses are simply commodities that sell quickly. Others believe the Federal Reserve (FED) is targeting demand, intending to reduce the number of buyers and control inflation. Increasing interest rates by 0.75% is a strategic move to both reduce inflation and force a correction in the real estate market due to reduced buyer activity. However, this may lead to a more severe situation in the future when the market becomes over-saturated with unsold properties.
Stable Revenue for Housing Lenders and Suppliers
Despite the FED’s adjustments, housing loan providers are showing signs of stronger performance. Construction material suppliers are also benefiting, with some exceptions due to persistently high inflation. This continued demand indicates that real estate prices are unlikely to decline, except in declining or deprived areas.
Currently, low interest rates and easy access to mortgage loans make buying a home more attractive than renting. For instance, it’s more financially sensible to make a monthly payment for a mortgage than to rent a two-bedroom apartment. Various other factors such as job stability, credit score, down payment, and personal preference also play a role, but the primary driver is affordability brought about by low rates.
While the real estate market is cooling down, a major correction is not expected. The market is more likely to experience a period of stabilization rather than a significant downturn.