Rising home mortgage interest rates, a lack of seller inventory and still high home prices have thrown the residential real estate industry and investment strategies into a tailspin.
With the average national home mortgage interest rate nearing 7.5%, many question the logic behind residential home investment for the foreseeable future. Benzinga talked to the general manager (GM) of a growing brokerage now serving seven states nationwide.
Dave Speers is the GM of brokerage at Philadelphia-based Houwzer, which describes itself as a modern, socially responsible real estate and mortgage brokerage. Speers, a Pennsylvania State University grad, was Houwzer’s first employee and has previously served as director of sales and the Philadelphia GM before assuming his current role. Benzinga asked him to share his thoughts about this increasingly volatile residential real estate market.
Benzinga: Is the current home real estate market a one-size-fits all scenario across the country?
Speers: No, it’s actually worse in some areas. Inventory in the Northeast is especially dead, but more homes like in Florida are coming on the market in the Southeast. Also, Arizona and Texas will come out of this quicker than the Northeast, certainly.
Benzinga: What is your advice for residential real estate investors?
Speers: Stay on your toes and look for opportunities. Winter is coming and it's going to be brutal for the housing market. What we have ahead of us will make the (pandemic) lockdown look like the glory days compared to what’s coming in the next few months. California, which is usually a bellwether for the rest of the country, is reporting sales are down 30% year to date. December, January and February are going to be the worst, and that’s when investors need to look for opportunities. Investors need to be patient and not afraid to lowball an offer. Short-term rentals are also a good investment opportunity.
Benzinga: Is this current drop in sales and inventory in some areas strictly because of interest rates?
Speers: Simply put, if interest rates stay at this level, people who need to move will have to drop the price to get out. Rental prices are also high now, and some have outpaced inflation, which puts homeowners wanting to get out in a bad position.
But in any market, there’s always going to be a percentage of the population who will need to sell, so there will always be some inventory. The way things are right now, if interest rates somehow drop anywhere in the 5% range, that will feel tolerable to people and might cause an increase in sales. There was such a built-up demand for buyers wanting homes after the pandemic that people will want to buy and sell as long as things come down a bit.
Benzinga: During a period of low inventory and bidding wars last year and in Q1 this year, cash was king. Those who outbid others for homes usually had cash on hand to do so. Is that still the case?
Speers: Yes, and cash buyers are also more savvy when it comes to making decisions. But with a recession looming, they’re battening down the hatches and only looking for steals.
They’ll also be quick to jump on opportunities when prices and interest rates come down. Right now, it’s a standoff between homeowners and buyers because though interest rates are up, prices aren’t really coming down. People are stuck. Prices are still at all-time highs and the market has been stubborn about reducing prices.
Benzinga: How does what many people believe is an inevitable recession different from the Great Recession in 2008?
Speers: The difference now is that the Fed (Federal Reserve) has made this a controlled and intentional crash. Unfortunately, it’s going to be the housing industry that feels the pain first. I’m hoping this will only be a six- to nine-month problem.
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Photo of Dave Speers Supplied by Houwzer
