Real Estate Marketing & Beyond
On May 3, 2023, the Federal Reserve raised its benchmark interest rate by a quarter point, marking the tenth hike made by the central bank since March 17, 2022. This is part of the Fed's ongoing effort to combat inflation, which has reached a 40-year high.
Getting inflation under control is obviously important, as runaway inflation can lead to serious economic issues. The problem, of course, is that raising the base rate to combat inflation is similar to using radiation therapy to fight cancer. Sure, it might work, but there’s a good chance it makes you miserable in the process. Especially if you work in real estate.
The Fed's interest rate hikes have already had a significant impact on the real estate industry. Higher interest rates have made it more expensive to borrow money, as banks and other lenders increase the interest rates on their mortgages. We’ve seen this clearly, with mortgage rates hitting new highs left and right. On paper, this leads to a decrease in demand for homes. Fewer borrowers would be willing to take out these loans, and fewer banks are willing to approve a loan for prospective borrowers without stellar credit.
The ripple effect of something like this is clear. This could put downward pressure on home prices and could make it more difficult for first-time homebuyers to get into the market. In other words, rate hikes make no one happy - not buyers that are priced out of the market, not sellers that find themselves having to lower the price on their home in order to sell it, and not the real estate professionals who work tirelessly behind the scenes to make it all happen. This is, of course, why any new Fed rate hike isn’t exactly welcome news to the real estate industry.
Of course, market predictions don’t always line up with what actually happens in real-world conditions. It's important to note that the impact of the Fed's interest rate hikes on the real estate industry varies depending on a number of factors, including the overall health of the economy and the level of demand for homes in a particular market. In some markets, the impact of the Fed's interest rate hikes has been relatively muted. For example, in markets where there is a limited supply of homes and strong demand from buyers, home prices may continue to rise even as interest rates increase.
In other markets, the impact of the Fed's interest rate hikes may be more pronounced. For example, in markets where there is an oversupply of homes and weak demand from buyers, home prices may fall more sharply as interest rates increase. This means that the impact of the Fed's latest interest rate hikes on the real estate industry is likely to be mixed. In some markets, the impact may be relatively muted, while in other markets, the impact may be more pronounced. It's important to stay up-to-date on the latest economic news and trends to get a better sense of how the Fed's interest rate hikes may impact the real estate market in your area.
The job of any good real estate professional is to be prepared for market movements and understand what the possibilities are that exist on the horizon. No one wants to see the sector they work in pivot to become less advantageous, but you’d better have a plan in place in case it does. So even as real estate agents remain hopeful that the Fed’s rate hikes are coming to a close or that their chosen markets won’t be as hit as hard as others, it’s still wise to think about what the worst-case scenarios are. Here are some specific ways that the Federal Reserve's interest rate hike could impact the real estate industry:
The Fed’s interest rate hike is likely to have a negative impact on the real estate industry. We know this because it already has to some degree - the volatility of mortgage interest rates has caused all sorts of havoc and will continue to do so. However, the impact of this latest hike will vary depending on a number of factors, including the overall health of the economy and the level of demand for homes in a particular market. Smart real estate professionals know that hedging their bets by staying prepared will help them weather this storm.
