Is Summer the Ideal Time to Invest in Real Estate?
Just like fashion trends, real estate also has its seasons. The summer season often witnesses a flurry of real estate activities, with desirable properties quickly finding buyers. However, is investing in real estate during this time really the best decision?
In this blog post, we will delve into the dynamics of real estate timing and analyze whether summer is an opportune season for real estate investments. Furthermore, we will explore the factors that influence property prices and highlight key considerations for potential investors. Join us as we unravel the intricacies of timing your next real estate move.
This post will talk about the following topics:
- The Seasonality of Real Estate
- Post-Summer Price Trends
- Current Real Estate Market Analysis
- Understanding the US Economy
- Localized Factors for Real Estate Investment
- Impact of Interest Rates on Real Estate
- Considering Market Sentiment
- Timing Your Real Estate Ventures
The Seasonality of Real Estate:
When it comes to real estate, timing can play a crucial role in the success of an investment. Historically, summer has been considered a busy season for the real estate market. With longer days, warmer weather, and families planning to move before the start of a new school year, the demand for properties tends to rise during this time. This increased demand often leads to competitive bidding and a quicker turnover of listings.
Post-Summer Price Trends:
While the summer rush may seem enticing for investors, it is essential to consider the potential price fluctuations that occur after this peak season. Studies have shown that property prices typically experience a decline ranging from 2% to 8% once the summer frenzy subsides. This downward trend can be attributed to various factors, such as market saturation, decreased demand, and a shift in buyer priorities.
Current Real Estate Market Analysis
To gain a comprehensive understanding of the real estate market's current state, let's examine the key factors influencing property prices this year.
Apart from seasonal trends, several factors contribute to the fluctuation of real estate prices. Here are some crucial aspects to consider:
The state of the economy, including GDP growth, employment rates, and consumer confidence, has a significant impact on the real estate market. A booming economy often leads to increased demand and higher property prices.
Understanding the US Economy
US GDP increased 2.1% in 2022 after increasing 5.9% in 2021. The GDP increased at an annual rate of 1.3% in the first quarter of 2023.
Year-over-year inflation, the rate at which consumer prices increase, was 6.5% in December 2022. The inflation rate at the end of April 2023 was 4.93%. When accounting for inflation, workers’ average hourly earnings were down 1.7% in December 2022 compared to a year prior.
The ratio of unemployed people to job openings remained at or near record lows throughout 2022 and into mid-year 2023. The unemployment rate was 4.0% at the beginning of 2022 and is currently 3.4%. The labor force participation rate remains almost one percentage point below February 2020.
The Conference Board Consumer Confidence Index fell in May 2023 to 102.3 (1985=100), down from an upwardly revised 103.7 in April. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—decreased to 148.6 (1985=100) from 151.8 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—decreased slightly to 71.5 (1985=100) from 71.7. The Expectations Index has now remained below 80—the level associated with a recession within the next year—every month since February 2022, with the exception of a brief uptick in December 2022.
In short, while unemployment remains low (good for the economy), the weak GDP, high inflation, and decreasing consumer confidence do not bode well for the economy. Many economists predict that the US will enter into a recession in late 2023 or early 2024.
Localized Factors for Real Estate Investment
Real estate is local, so while national trends are important, the state of the local economy will have the biggest impact on prices. Look at local data for job rates, population growth, crime rates, and investments in infrastructure.
Location: The old adage "location, location, location" still holds true in real estate. Desirable neighborhoods with good schools, amenities, and proximity to transportation hubs tend to command higher prices. This holds true in all economic cycles.
Supply and Demand: The balance between housing supply and demand heavily influences property prices. A shortage of available properties in a high-demand market can drive prices up, while oversupply can lead to price depreciation.
While national housing supply has improved this past month, housing inventory remains historically low. Current inventory is about 1.04 million homes available. Historic average is about 2-3 million homes available.
Again, real estate is very localized. So, check the supply/demand trends in your market.
Impact of Interest Rates on Real Estate
Interest Rates: Changes in interest rates can affect the affordability of mortgages. Lower interest rates make borrowing more attractive, stimulating demand and potentially driving up prices. Higher interest rates, the environment we are now in, does the opposite. Higher rates make borrowing more expensive, decreasing demand, and having a downward pressure on prices.
We are in a much higher rate environment today than we have been for many years. The Federal Reserve raised interest rates seven times in 2022 and again three times in 2023 to curb inflation, increasing the target rate from near zero at the beginning of 2022 to 5.0-5.25% today.
Considering Market Sentiment
Investor sentiment, consumer confidence, and overall market conditions can impact buyer behavior and subsequently influence property prices.
Investing in real estate is a significant decision that requires careful consideration of various factors. While summer may offer a vibrant market and quick property turnover, it's crucial to weigh the potential post-summer price declines. By analyzing the current real estate market, understanding key factors influencing prices, and keeping a pulse on economic conditions, investors can make informed decisions about the ideal timing for their real estate ventures.
Timing Your Real Estate Ventures
Remember, real estate investment is a long-term endeavor, and timing is just one piece of the puzzle. Conduct thorough research, consult with professionals, and align your investment strategy with your goals and risk tolerance. Happy investing!
