Market Changes in Real Estate

Pavel Saikin
Jun 16, 2022
3 min read

Updated: May 8, 2024

All markets are intertwined to some degree, but the markets that have the most connection in recent months are the bond market, equities market, and housing market. The bond market determines the yields, which in turn impacts the mortgage rate.

Home prices are going to feel some of the waves of the mortgage rates, but the NYC/JC/Hoboken markets are generally going to hold up because of how high the rent prices are and the overall shortage of housing. There are homes for sale and for rent, but even with the insatiable amount of rental development, there is still a shortage. We expected to see the supply increase since JC added 7k+ new rental units in the last 24 months, but we are actually seeing some of the lowest vacancy rates in the last 8 years. All while having the highest rents ever.

There could be a few percentage points decrease in housing prices if rates continue to climb, but a pricing crash is less likely, regardless of Fed policy. Even a lowering of prices is up for debate because they might just stabilize rather than drop. Mortgage rates have done their meteoric rise, which has only been seen 4 other times since 1979, and in each previous case, the rates fell significantly thereafter. Timing is the hardest part because we just don't know how long it will take for the market to correct, but we are much much closer to the top than the bottom. It could be 3-6 months or 6-12months until we see rates go down. My theory is that it is better to buy at slightly higher rates and let them drop because as they drop, home prices will go up (eventually).

There is an imbalance right now on rent price to home price ratios. This imbalance is being held up by the high interest rates, but if rates begin to lower, then the home prices will have to increase to correct the imbalance. Theoretically, rent prices can drop to correct the imbalance, but that would require a shift in migration patterns, which is a much less likely scenario. It could be 3-12 months for the rates to come down, but it could also be 2-3 years. Very hard to predict because new economic data comes out every month that changes the dynamic. It is generally recommended to keep in the market for a home that makes sense space-wise and fiancine-wise for a longer period of time (5-7 years ideally as a minimum). When the rates do finally drop, the home prices will rise and refinancing becomes a viable option. If the rates take longer to drop, that just means the sale-to-rent price ratio will reach further imbalance since more will head to renting, and this will lead to a stronger home appreciation once the mortgage rates do finally come down.

Although nothing is guaranteed (other than death and taxes), rates have historically gone down over time. They have periods of going up, such as the last 18 months, or other periods in 2018, 2014, 2003, etc. But after a rise, they come down. It is all really driven by the bond market, which affects yield rates, which in turn affects mortgage rates. Right now investors are scared to invest in the bond market because of the uncertainty of the future US economic policy, but once we get over the hurdle of inflation and uncertainty, then the bond confidence will return and we will see rates come down. It's just a matter of waiting for the fog to clear, which is why it's best to not time the market. Rather, to get into something that can be held long term because there is always a rainbow after the storm.