House prices are seemingly starting to feel the effects of the US Fed rate hike, with mortgage rates above 7% forcing prices to fall slightly over the last two months by roughly 1.6% each month.
After years of growing house prices, this is a strong shift. However, there is still a lot of opportunity in real estate below the surface. In fact, several factors have combined to keep real estate markets strong, going into the new year.
First, housing supply has remained very low compared to housing demand, which has kept the market strong despite a lot of increases in the cost to many borrowers who want to take out a mortgage. And while credit-driven sales may have dropped, cash buyers ranging from individual investors to big banks and asset managers who are piling into the asset class in search of safety and stable returns, are stepping in to fill the gap.
Secondly, along with the low inventory, there is still a lot of growth in rental demand. According to several reports, demand for rents is growing faster than the housing market can supply, leading to a situation where you see lower housing prices and higher rental rates. That is great news for an investor as you can buy lower, earn better yields and get better performance on your investments.
Also, non-traditional sources of housing inventory remain a viable source of below-market priced houses, which should help real estate investors in 2023. We recently announced an auction we were participating in, which is typically a great source of inventory for us and some of our users participated. Opportunities like these will continue to be available, and our users will be able to participate both through the real estate plans and through direct ownership.
Don’t forget that in what has been a historically tough year for investments, real estate as an asset class has still delivered a strong performance, with our users seeing above 11% annualized return in USD so far this year, with additional returns coming in this month. Based on these, we have a lot of reasons to be excited about real estate in 2023.