A Guide To Understanding Todays Real Estate Market With A Quantitative Tightening Fed

The Real Estate Marketplace is on the fence of potential turmoil nationwide due to raising inflationary pressure. The nations Federal Reserve has a fiduciary responsibility to keep the American economy strong & for that has began raising interest rates through the year of 2022 thus far — (Q1&Q2).

Due to raising rates, otherwise known as Quantitative Tightening — the rate of which the American economy can borrow money has unfortunately raised in interest. By raising rates, The Federal Reserve hopes to lower raising inflationary pressure. The latest CPI (Consumer Price Index) for June 2022 showed a whopping 9.1% average for inflation nationwide on everyday goods and services for the US Economy. With rates continuing to rise, Americans fear that the Federal Reserve can’t catch up to the quickly rising inflationary pressure without setting the US Economy into a recession.

Without a PHD in economics, one could see that as rates continue to rise to combat inflation the American GDP is at risk to shrink. Real Estate asset classes are at risk of depreciating in value as ask prices lower to meet bid demands across the country. To learn more about inflationary pressure and raising rates, we broke down what we believe to be helpful information for those looking to purchase a home in todays marketplace.

Borrowing Rates & Buying Power

Many first time home buyers have been priced out of purchasing a home after the monetary printing cycle which was approved resulting the Covid-19 crisis which unraveled the US Economy in 2020. Due to the monetary printing, home values & ask prices across the nation grew exponentially in value. Critics and Economists have viewed this phenomenon as the recipe for a housing bubble, stating “This can’t keep on for much longer”. Monetary printing offered a short term fix in a crisis that supported many Americans to get through tough times during the pandemic. As the nation has moved forward, the US Economy can’t seem to shake the inevitable inflationary pressure that has come along with money flowing endlessly across the economy. As rates have risen through the year of 2022, so has the rate of which Americans can borrow money from their mortgage provider. With no end in sight to raising rates, homes for sale have begun to decline in listing value to meet buyers willing to take on higher monthly payments.

Timing The Market & Understanding The Current Real Estate Cycle

Unfortunately there is no crystal ball that shows us when and how the economy will move, & if there is please let us know! Since we can’t time the market, what can we do? Looking at what leading institutions and investors across the country are doing, it is fair to say many are sidelined with capital waiting for the “bubble” to pop. For first time home buyers, utilizing a FHA loan for a minimal principle down payment is something that is an amazing resource to have. A home can certainly be looked at as an appreciating asset, depending on of course what price you can purchase a home for. As rates continue to rise, asking prices will continue to drop making a home more affordable and pricing many Americans back into the marketplace to buy a home that suits them. Hoping for an all out recession is certainly not something to hope for, but for those prepared for “Dooms Day” there’s certainly going to be a lot of opportunities to buy undervalued assets when and if the Real Estate market does continue to drop in value.

Preparing For A Recession & Eyeing Home Values

Of course with money becoming more expensive to borrow, & less money circulating the economy — having money saved or easy to liquidate assets is an important factor to navigate hard times. Creating better monetary habits now is a viable option for those unaware of todays market environment. Although things may seem stable, there is a strong chance for the market to turn for the worst as the Fed tries to chases inflation back down. If inflation continues to rise, and if (.25-.50 BPS) rate hikes shows to not be enough — Look for the Fed to raise rates even higher. As rates rise more drastically, the risk for economic turmoil becomes more of a reality. If Americans can create better spending habits, The chance to participate in the fire sale will become a reality for many. Home values are showing across the nation to slowly start to cool down, if rates continue to rise and the GDP of America begins to die down look for home prices in your marketplace to become more appealing for purchase.