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Is The Real Estate Market Slowing Down?

Performance Property Real Estate Question

Q: Is The Real Estate Market Slowing Down? Quentin, New Providence, NJ


A: There really is no “real estate market,” every local real estate market is different and distinct, however some factors affect all real estate markets like interest rates which are rising. Interest rate increases tend to dampen real estate price increases because they reduce the purchasing power of home buyers who get mortgages. Every 1% increase in mortgage interest rates reduces home buyer purchasing power by 9%. For example, if you are currently able to afford to buy a $200,000 home and mortgage rates increase by 1%, your purchasing power would go down 9% or $18,000, meaning that you would now only be able to afford a home worth $182,000.

In North Jersey where I invest, I have noticed that sellers and landlords are getting greedy and are getting push back from buyers and renters, which is often an ominous sign of a potential market inflection point. I’ve also found that days-on-market for high end homes is increasing, which may may an important leading indicator or may just be due to trepidation regarding the $10,000 federal cap on local tax deductions embedded in the new tax law. There is seasonality in real estate that usually sees demand peak in the spring and draw back in the winter, so it’s hard to say what short term changes will mean long-term without the benefit of more time to see if a short term movement is an aberration or part of a much bigger trend. I’m analyzing the local real estate markets I operate in intently and so should you.

Thanks for your question, Quentin. For more real estate information and tips visit my blog at geraldlucas.com.

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