December 2022 Mortgage Rates Go Down

Related: Home Builders Expecting Downturn in the Real Estate Market in 2023

How the Market Has Reacted in the Last Month

With the way things turned out in the past year, the real estate market went on quite a historic ride. 2021 gave us some of the lowest interest rates in recent history, as well as lower property prices in nearly every market. However, mortgage rates and property prices picked up in the latter part of 2021. 

A lot of 2022 forecasts predicted that the year would end with 5% mortgage rates, but most of the predictions never factored in the unexpected Eastern European geopolitical conflict. It was at that point when almost everything went nuts. The price of oil and fuel went up, which consequently affected almost everything else around the world, especially the supply chain.

As a result, inflation rates also went up, forcing the Federal Reserve to make several interest hikes over the past 12 months. Its goal was to combat inflation by minimizing consumers from borrowing money for goods and services. 

Consequently, it caused the market to behave in different ways. Investors and buyers became more cautious with home purchases because of higher interest rates. Sellers, on the other hand, were making deals and cutting down on their asking prices, especially those who are in a hurry to make a sale. 

That said, both buyers and sellers rely on market knowledge, experience, and instinct when it comes to making real estate investment decisions. 

Home Purchases Go Down

The Fed’s consecutive interest rate hikes made it extremely difficult for the average investor and homebuyer to purchase a home. Regardless if it’s for residential use or will serve as a rental unit, the number of properties sold over the past couple of months was down from a year ago.

For this reason, a lot of investors looking to buy properties are putting their plans on hold. However, we’re also seeing several housing markets cool down in recent weeks. The market’s cooldown, plus the steady and slow decline of mortgage rates, can signal an uptick in property purchases at the start of 2023. 

Despite the ongoing decline in property prices and mortgage rates, investors and buyers are taking things a little slower than usual. There are, of course, those who are still taking calculated risks at this point, but there’s not much of them out there. 

Will we ever see a surge in property purchases like what we saw during the pandemic? Given the way things are going, given the rate of inflation, it is highly unlikely. What happened during the pandemic was a freak accident of some sort that might never be replicated. 

Related: Investor Home Purchases Down 30% Year on Year

What This Means for Real Estate Investors

At this point, given the present circumstances, investors are advised to proceed with caution when purchasing investment properties. Sure, the real estate housing market is cooling down in plenty of regions and mortgage rates are declining, but it doesn’t necessarily mean that you should go buying income properties left and right. 

You need to consider several factors that will impact your decision. Inflation plays a big part in the decision-making process. You cannot discount it, as a lot of potential homebuyers are opting to just rent instead of buy because of high interest rates and the increasing cost of goods and services. 

If you’re into rental property investing, now is a good time to invest in real estate as the demand for rental properties is increasing. Not only that, given the current inflation rate, rental prices are also going up in certain markets to offset the effects of inflation. 

However, if you’re a rental property owner and you plan to increase your rental rates, make sure you adjust them reasonably and accordingly. Don’t go overboard with the increase, as it will surely turn a lot of prospective tenants off and drive them to the competition. You might end up with an overpriced rental with a higher vacancy rate. 

Adjust your rates accordingly, at least just enough to keep the property well-maintained and give you a decent rental income but is still affordable to regular folks. 

Related: High Mortgage Rates Pushing Consumers to Rent Homes Instead of Buy

Is This the Calm Before the Storm?

At this time, considering how property prices and mortgage rates are going down – albeit at a slower pace – people are asking two things: 

• Will this downward trend continue and give us access to better housing affordability?
• Is this just the calm before the storm?

According to Bankrate’s chief financial analyst Greg McBride, we are most likely to see a slower economy before we start feeling the benefits of lower inflation.

McBride said:

“The Fed’s interest rate mantra for 2023 is shaping up as ‘higher for longer.’”

The above statement follows the Fed making good on its promise of raising interest rates yet again in November. While the Fed’s actions don’t directly affect fixed mortgages, it significantly impacts adjustable-rate mortgages and home equity products. Every time the Fed increases its rates, variable home loan rates also move.