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While most investors spend the vast majority of their time thinking about their stock portfolios, real estate often plays a much bigger role in the net worth of families across the country. Thus, when house prices drop, the resulting negative wealth effect can hurt the entire economy. That makes questions of “will the housing market bounce back” pretty important right now.
Home purchases from investors are continuing to slump. Now down 30% year-over-year (YOY), investors who have sworn by the real estate sector appear to be taking a step back. Overall home purchases have declined by a similar amount, suggesting that this feeling is relatively widespread across the economy.
Rising mortgage rates combined with near all-time highs in housing prices have provided an unaffordability complex that’s hard for investors to overcome. Additionally, with so many homebuyers (and homeowners who refinanced) locked in at mortgages around or even below 3%, there really isn’t the incentive to sell right now and buy another property with a near-7% mortgage rate. Thus, we’re left with a stagnating market.
Let’s dive into where the housing market could be headed from here.
Will the Housing Market Bounce Back?
Historically speaking, the housing market has always bounced back. It’s really just a question of what an investor’s time horizon is with respect to when a recovery is likely.
Those hoping for a housing market recovery before the end of 2022 may be disappointed. From a seasonality perspective, November and December tend to be low-volume months for housing sales. Accordingly, with house prices on the decline relative to their average high of $413,800 in June (around $384,800 in September), it’s unlikely that we’ll see an uptick in housing prices before the end of the year.
Inflation may be moderating. That said, with house prices still 8.4% higher on a YOY basis, the Federal Reserve may also decide to keep its foot on the economic brakes.
The housing market is also regional in nature. Accordingly, while most statistics are shared on the national level, certain cities and jurisdictions could see outsized losses relative to others. Thus, for certain markets, perhaps a year-end recovery could be in order, if mortgage rates continue to dip.
For most investors, though, the real estate space looks less-attractive than it has in some time. As with stocks and other investments, being patient is key. A recovery will happen. Just maybe not in 2022.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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