Many factors contribute to forecasting the real estate market. The most significant indicator of the real estate market’s success is unemployment.
The spring market started off with a bang. We are back to the highest and best offers, appraisal guarantees, and inspection waivers. Low supply is driving the market. There are just more buyers than sellers currently. Some properties have started to slow down; very high-end homes and junky properties have begun to bring the market down in specific areas. As we enter the summer and kids are out of school, people start summer vacations and spend time outside. It’s standard for the market to tighten up, so don’t be surprised.
We have seen inflation flatten but not disappear; it is genuinely sticky. Rates continue to rise, and no one is sure when they will stop elevating, but you can be confident they won’t decline as quickly as they have increased. So we will be stuck with relatively high rates for the foreseeable future.
Inflation and high rates have taken some time to slow the stock market down, but it’s starting to happen. You can see the volatility increase, and except for new AI technology, there is a lot of uncertainty in the market. We talked last month about all the job layoffs by large corporations. And while some reports boast job opportunities, the most common job openings are in lower-paying fields. The higher-paying job market is starting to show some cracks. Companies are pulling back on their capital investment, slowing their hiring process, and keeping cash in the bank. Businesses are much less aggressive than they have been over the past 24 months.
All these factors will lead to rising unemployment, excluding the low-end job market. We have a massive shortage of people to fill those jobs, but watch the middle manager and jobs of redundancy start to decline. These jobs that can easily be eliminated are the first positions to go and will be very hard to replace. Companies realize to keep their profits strong, they can’t raise their prices anymore, and there is a limit to how cheaply they can buy their goods. They can’t get people to work for less, so what are they to do? Cut head count.
Why is this important to us as investors?
Every person borrows money to make a big purchase, like a house. So far, the market has handled the higher prices of homes and the higher cost of borrowing money; what it can not take is people who aren’t working. If you don’t have a job, it doesn’t matter how much a house costs or what the rates are; you can’t qualify for a loan or make your current payments.
Inevitably, unemployment will rise in the next 12 months. Keep this in mind when you are investing. It will affect all markets.
As always, if you need help with cash or an asset-based loan, reach out to me: 248.729.1898