What are your market predictions for the next 6 months?

[Kyle Curtin]

Gooooood mornin’ BP!

       Another lovely question for the community! I wanted to hear all of your thoughts and opinions about which direction do you predict the market is going to go in the next 6 months and why!

Even more brownie points if it is tailored more towards the 2-4 unit multifamily space!

I personally envision us being in this position for a bit longer, especially going into the winter and having the seasonal slow down. The rates are still increasing, I have seen it is increasingly difficult for buyers looking for that first househack to be able to make the numbers work and retain purchase power. Many of my buyers on the agent side have sticking to the wayside but will be coming back soon to jump back into things.

We shall see! Let’s hear your thoughts below!

#househack #massachusettsrealestate #realestateinvestor #Gardner #leominster #worcester #massrealestate #multifamily #realestateinvesting #Candorealty #realestateagent #realtor #investor #assets #cashflow #Lowell #Boston #Duplex #Triplex #Quadplex #smallcommercialmultifamily #commercialmultifamily

[Ben Zimmerman]

My prediction?  Pain.

Purchase price matters for cash buyers, but most people aren't cash buyers.  Instead the number that matters is the monthly mortgage payment and how affordable/unaffordable that number is.

With interest rates rapidly rising, this has caused homes to quickly become unaffordable.  The home I currently live in I purchased a couple years ago for 215k @2.35% interest rate causing the mortgage to be around 1200.  However for a new owner to buy the same house at its current valuation of 340k @ 7.72% interest that would be payments of close to 3k/month.  That's a massive difference in payments.  

While home prices are dropping, they aren't dropping as fast as interest rates are rising.  This is likely due in part to the fact that nobody really expects these higher interest rates to stick around for very long.  And also because sellers who haven't owned the property for very long no longer have any equity in the homes with these falling prices and are deciding to simply stay put instead of selling thus reducing the supply of homes available which keeps demand at a tolerable level.

Yes I realize that long term historical mortgage rates tend to hover in the 6-7% range, but historical data is only useful data if we live under the same overall economic conditions as when that data was current.  When those historical rates were 6-7% when our national debt hovered around 40% of GDP, however today our national debt is around 140% of our GDP and we are one of the most indebted countries in the world.  

Given our total national debt of $31 trillion, for every basis point of additional interest rates, we must pay an extra $3.1 billion in interest per year.  This means a 1% interest rate hike equates to $310 billion dollar payments per year.  Obviously bonds have terms, so not all of this debt will require those higher interest rate payments immediately, but as time goes on and new notes are issued this becomes a serious problem.  This is why I believe interest rates will eventually drop back into the 3-4% range.

I imagine 1 or 2 more rate hikes, and then believe that rates will hold steady for 6-12 months before starting to retreat lower.  

As for the 2-4 unit space, I believe this sector will be particularly problematic in the short term. These types of units are helpful for individuals looking to house hack, or for small time investors looking to dip their toes into something other than SFR, however if people are struggling to afford 1 unit under these dramatically higher interest rates, it stands to reason that being able to afford 4 units for these small time players is going to be extremely challenging. Sellers will find it difficult to find a buyer willing to pay enough to turn a profit under these falling price markets, and units will probably sit on the market for sale for longer durations with the current owners simply choosing to ride it out and keep renting the units for a few years until the market recovers.

The good news is that if you believe interest rates will drop in the medium term, then you can take advantage of home prices that are dropping and buy more units, and then refinance in a year or two after rates have dropped.  Long term housing prices are largely dictated by inflation rates.  With the large amount of inflation we had the last year or two, once interest rates begin to fall, home values will begin to rise to match those inflation rates.