Podcast: Dark Clouds on the Horizon… Where Does Real Estate Go in the Current Environment?

Location Cubed

Key Points:

• New reports offer insight into shifting economic times
• A recession will impact real estate differently across various sectors
• Rising interest rates on mortgages slows the single-home market

On this episode of Location Cubed, Rob Nowak and Howard Altshuler sit down to discuss recent economic news. They focus on JP Morgan’s earnings as well as the Fed’s release of the Beige Book and what those insights tell us about the real estate industry.

To preface it all, Altshuler said, “real estate is always still local. We have to look at it from the standpoint that each market is going to be different.” The conversation turns to cracks that are showing in the façade of the real estate market. “One is home sale contract cancellations, which are up,” said Nowak.

Due to an increase in interest rates, negotiated home contracts are increasingly being canceled. The contracts, which determine a certain price, may be beyond the buyer’s means due to the hike in interest rates. “That tells me that people may have overextended themselves,” said Nowak. According to the Washington Post, interest rates averaged 2.88% in July 2021 and were averaging 5.3% in mid-July 2022. “A good rate is 5-6%, a few months ago it was 3-4%,” said Altshuler. Altshuler predicts that some buyers who were ready to leave multi-family homes are now staying, which shows a promising turn for that sector of the market.

The episode continues to explore what the reports mean for other sectors of the economy. “The question isn’t ‘is there going to be a recession? Is there going to be a decrease in value?’ That’s probably a given. The question becomes, ‘how much?’” said Altshuler. “The National Bank said, ‘We’re starting to reserve for consumer credit.’ A consumer credit crisis will drag on the housing market.” said Nowak.

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