To combat rampant inflation in America, the Federal Reserve has implemented significant interest rate hikes since March 2022. As a result, mortgage rates have risen sharply, which can dampen the enthusiasm and purchasing power of potential homebuyers.
According to online real estate marketplace Zillow, there’s been a pullback in demand lately, and mortgage rates could be a main driver.
“High mortgage rates have stretched many buyers’ budgets to the breaking point,” Zillow’s senior economist Jeff Tucker wrote in a recent research report.
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The report pointed out that 30-year fixed rates have remained above 7% for six weeks. Consequently, a typical monthly mortgage payment for homebuyers reached $1,896 in August, marking an 18% year-over-year increase.
“Altogether, the monthly principal and interest to buy a typical home has increased 122% in the past three years. So buyers have ample reason to be balking right now,” Tucker said.
A Sweet Spot On The Horizon
On the supply side, Tucker highlighted an unusually high month-over-month increase in new listings for August. At the same time, sellers seem to be more willing to lower their prices.
The report noted that the weekly share of listings with price cuts rose to 9.2% in the week ending Sept. 16, which was the highest share since November 2022.
But opportunities could arise for potential buyers.
“For determined buyers, with enough budget room to accommodate the recent jump in mortgage rates, this fall is looking more and more like a sweet spot: There are more motivated sellers and more active listings overall than any time since last December, improving buyers’ chance to find the right fit,” Tucker wrote.
Alternative Ways To Invest In Real Estate
If you are not a “determined buyer” or don’t want to go through all the steps required to purchase a property, there are more passive ways to tap into the real estate market.
For instance, you can consider real estate investment trusts (REITs), which own income-producing real estate and collect rent from tenants.
REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends. This requirement makes them appealing to investors looking to earn a passive income.
These days, there are plenty of REITs trading on the stock market, so it’s easy to invest in them. You can purchase shares of a REIT much like you would buy stocks of a company.
And if you don’t like the volatility associated with publicly traded REITs, there are also crowdfunding platforms that allow people to invest in a wide array of properties across different geographical locations and property types.
For instance, if you are interested in single-family rentals, there are options to invest as little as $100 in a rental property while staying completely hands-off.
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This article Homebuyers’ Budgets Now Stretched ‘To The Breaking Point’: Zillow Says Monthly Payment On A Typical Home Soared 122% In 3 Years, But A ‘Sweet Spot’ For Buyers Could Arrive Soon originally appeared on Benzinga.com
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