Real Estate Market: A Mixed Bag
The real estate market in the United States is currently experiencing a mixed bag of trends. According to the Mortgage Bankers Association, commercial real estate lending has plummeted 44% from the start of the year, indicating a market struggling to break out of its ‘logjam’. On the other hand, the housing market remains competitive for prospective buyers, with many homeowners “locked in” at low interest rates and unwilling to sell, demand continues to exceed for-sale inventory .
Housing Market Predictions For 2023
The housing market activity remains weak due to rising mortgage rates, elevated home prices, and constrained housing inventory, perpetuating the housing affordability crisis 2. To make matters worse, the Federal Reserve may raise the federal funds rate once more before year’s end to further tame inflation 2. The federal funds rate is the benchmark interest rate financial institutions charge each other for overnight loans. The rate hovered near 0% in March 2022. Then the Fed began raising rates to bring down inflation to a 2% goal. After 11 interest rate hikes, the current rate range is 5.25% to 5.5%, the highest in 22 years .
Real Estate Inventory Is Stuck in a Rut. What Will It Take to Open Up the Market?
The real estate market in the United States is currently experiencing a mixed bag of trends. According to the Mortgage Bankers Association, commercial real estate lending has plummeted 44% from the start of the year, indicating a market struggling to break out of its ‘logjam’ . On the other hand, the housing market remains competitive for prospective buyers, with many homeowners “locked in” at low interest rates and unwilling to sell, demand continues to exceed for-sale inventory.
Housing Market Predictions For 2023
The housing market activity remains weak due to rising mortgage rates, elevated home prices, and constrained housing inventory, perpetuating the housing affordability crisis 3. To make matters worse, the Federal Reserve may raise the federal funds rate once more before year’s end to further tame inflation 3. The federal funds rate is the benchmark interest rate financial institutions charge each other for overnight loans. The rate hovered near 0% in March 2022. Then the Fed began raising rates to bring down inflation to a 2% goal. After 11 interest rate hikes, the current rate range is 5.25% to 5.5%, the highest in 22 years.
Flipping Market Status
The flipping market, which refers to buying and selling a property within a year, has been experiencing a decline in profits. In the third quarter of 2023, gross flipping profit fell 18.4% from the previous quarter, with the gross profit on a typical home flip transaction being $62,000 4. This represents the smallest profit since the end of 2019 and the fastest quarterly drop since 2009 4. With profits shrinking and higher mortgage rates hurting affordability for potential buyers, the share of home sales that were flips fell as well. Roughly 7.5% were flips in the third quarter, still historically high, but down from 8.2% in the second quarter.
According to the US Bureau of Labor Statistics, the median annual wage for real estate sales agents was $49,980 in May 2022 1. The average real estate agent annual wage in the United States is $62,060, while the average annual wage for real estate brokers is $81,450 2.
The National Association of REALTORS® reports that agents putting in 40 to 50 hours a week can expect to make around $113,054, while agents who work 50 to 59 hours a week report earning an average of $143,469 3.
Here is some information on the building market labor salary and homeowners insurance situation:
Building Market Labor Salary
According to the US Bureau of Labor Statistics, the median annual wage for construction laborers and helpers was $38,970 in May 2022 1. The average hourly wage for construction workers is $16.87, while the average annual salary is $35,080 2.
Inflation has been affecting the construction industry, with building labor and material costs up nearly 20%, which is the highest in 40 years 3. Construction wages are up nearly five percent following the pandemic and its resulting labor shortages.
Home Owners Insurance Situation
The cost of building or rebuilding a home has become much more costly than just a year or two ago due to inflation. The rising cost of capital goods, construction materials and vehicles, and escalating labor costs have driven the annualized inflation rate to a 40-year high of 8.6% in May 2022 This has led to higher-than-average labor and construction costs due to inflation and expensive natural disasters, which have caused home insurance premiums to go up by hundreds, even thousands of dollars in certain states . In fact, home insurance premiums were up an average of 21% from May 2022 to May 2023.
Retail Value has been dropping
According to a recent article by CNN, office and retail property valuations have been falling since the pandemic brought about lower occupancy rates and changes in where people work and how they shop. The Fed’s efforts to fight inflation by raising interest rates have also hurt the credit-dependent industry .
Tough Road Ahead
Another article by CNBC suggests that there are reasons to think the road ahead will be rocky for the real estate industry and banks that depend on it. And the stakes, according to Goldman, are high, especially if there is a recession: a credit squeeze equal to as much as half a percentage point of growth in the overall economy .
Real Estate Commissions Inflated NAR guilty
A recent verdict by a federal jury in Kansas City found the National Association of Realtors (NAR) and some of the largest real estate brokers in the country guilty of colluding to inflate real estate commissions. This verdict is a major shake up to the U.S. real estate market and could change how Americans purchase homes, or specifically, how they pay for broker fees.
