Jhe housing market is showing various signs of slowing. And this is something that income property owners need to be aware of.
In June, contracts signed for the purchase of existing homes fell 20% on an annual basis, according to the National Association of Realtors (NAR). This represents the slowest pace of sales since September 2011, except for the first two months of the COVID-19 outbreak (which, let’s face it, we can’t really count as much of the country was in lockout at that time).
On a monthly basis, pending home sales fell 8.6% from May. That’s a much bigger drop than housing market experts were anticipating.
Unsurprisingly, a drop in pending home sales came at a time when mortgage rates were on the rise. In mid-June, the average 30-year mortgage rate crossed the 6% threshold before falling again later in the month. But borrowing rates were significantly higher last month, compared to June 2021.
Should income property owners be concerned?
A sharp drop in pending home sales does not automatically mean that buyer demand is dropping significantly. Remember that the real estate market has been sorely lacking in inventory for months. When there are not many homes available for purchase, the number of contracts made by buyers is likely to drop.
But it’s also important for real estate investors with income properties to see the big picture – that higher borrowing rates can lead to a sharp pullback from buyers, and that may already be happening. So investors considering selling an income property may want to act quickly, before home values start to drop and more buyers are forced out of the market due to rising borrowing rates. .
Will home sales continue to decline?
The NAR forecasts total home sales for the year to fall 13% from 2021. However, it also forecasts a slight increase in home sales in early 2023.
Ultimately, mortgage rates will play a large role in the total number of home sales. Earlier this week, the Federal Reserve implemented an interest rate hike of 0.75% for the second month in a row. Mortgage rates did not react to this change overnight, but in the weeks and months ahead they could rise sharply from their already high levels.
Given the possibility of much higher borrowing costs and exorbitant home prices, it will come as no surprise to see more buyers pull out of the market this year. Investors who wish to sell income properties should not hesitate to prepare their listings. The wait could be the difference between getting an amazing profit and just average profit.
It should also be noted that home sales are falling at a faster rate in some markets than in others. In the West, sales fell almost 31% from June 2021. Investors in this corner of the country may want to act particularly quickly, before losing the chance to walk away with offers they are happy with.
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