If you have been waiting to invest in real estate, now is the time to buy. In the United States, sales prices are down 22% from the previous year. As of June 1, 2023, the WealthBuilders Team advises you to start looking at different properties and surveying rental markets.
So, in this episode of The WealthBuilders Podcast, Billy Epperhart provides a thorough real estate market update for Q2 of 2023. He gives an overview on market supply, interest rates and inflation, as well as three potential scenarios for interest rates in the upcoming year.
In addition, you’ll learn the top 10 markets for vacation rentals across the United States. You can read the shownotes below and listen to this episode here (or on your preferred podcast platform.)
2023 Real Estate Market Update: Podcast Shownotes
- As of May 18th, 2023, the average 30-year fixed mortgage rate stands at about 6.52%
- The Federal Reserve has raised interest rates 10 meetings in a row
- Because of rate raises, previously-owned homes are down in sales by 22 percent since last year. So, the market is softening.
- Now, not every market is down by 22%. However, across the United States, it’s a good time to start looking for investment properties.
- You have to look locally. Examine the cities, counties, and municipal areas because not every area is down that much. Some are actually down more.
- Inventory across the country is still low.
- In a hot market, there is a 3-month or less supply of homes (meaning that it would take 3 months for all the houses on the market to sell.)
- However, a year ago houses were selling in a matter of hours! In this sizzling hot market, having a house on the market for more than a week was a long time for sellers. The markets are starting to stabalize.
Real Estate Market Update: Inflation & Interest Rates
- The reason that the Federal Reserve continually raised interest rates was to combat record-high inflation (which, at its peak, hovered around 9 percent.)
- Even with raised interest rates, inflation has not cooled as much as the Fed would like (it’s just below 5%.)
- So, it’s possible that the Fed will raise interest rates another 25 basis points at the next meeting, which is a quarter of a percent. That hikes up mortgage rates as well.
- We can compare this interest rate trend with what President Reagan did in 1979-1981. To combat high inflation, Reagan raised interest rates all the way up to 17-18 percent.
Real Estate Market Update: 3 Potential Scenarios on Interest Rates
1. Inflation will remain high, and it will force the Fed to repeatedly raise interest rates until inflation is washed out of the economy.
In this scenario, mortgage rates could climb as high as 8.5%. Consequently, housing prices will soften.
2. The Consumer Price Index (CPI) will respond to the Federal Reserve Rate.
Thus, mortgage rates will stabilize in the 7-7.5% range.
3. The Fed repeatedly raises interest rates to combat inflation, and the economy falls into a recession.
I believe that we are going to enter a recognized recession. (Meaning, the White House doesn’t necessarily acknowledge it, but it’s apparent.) In this case, interest rates could go down to about 5%.
With higher interest rates, is it still a good time to buy?
Your first consideration on a property is not the interest rate. It’s what your cash flow from rent would be with that interest rate in mind. Remember that rents will continue to increase, especially during inflationary periods.
So, here’s the point. It’s not just what the interest rate is, is what your cash flow could be, or should be based on what you’re purchasing. We recommend the 1% rule as a key real estate formula. For example, if you are going to pay $300,000 for a house, you should be able to get $3,000 in rental income. Another good way to look at it is to aim for at least $300 of positive cash flow monthly after your mortgage, taxes, insurance, and management fees are paid.
Refinancing
If you are able to hit a positive cash flow at higher interest rates, you’ll be in great shape once rates go down and you refinance. There are two refinancing scenarios: you can refinance what you owe or do a cash-out refinance. My suggestion would be to refinance what you owe, unless you are actively investing.
You can refinance, take the money out of that property and use it to purchase another, all the while maintaining your $300+ monthly cash flow. So instead of having one property that’s cash flowing $300, you now have two properties that each have a cash flow of $300. Now you have $600 a month in positive cash flow!
Vacation Rentals
Vacation rentals can be a great option for real estate investors. This list analyzes the best real estate markets to invest in for vacation rentals according to Evolve Vacation Rentals. With vacation rentals, it’s imperative to pay attention to local laws and regulations, as well as HOA fees.
10. Windham, New York
$460,000 median home listing price
$46,000 annual gross rental revenue
9. Ruidoso, New Mexico
$243,000 median home listing price
$22,000 annual gross rental revenue
8. North Conway, New Hampshire
$357,000 median home listing price
$40,000 annual gross rental revenue
7. Waldport, Oregon
$380,000 median home listing price
$42,000 annual gross rental revenue
6. Branson, Missouri
$180,000 median home listing price
$22,000 annual gross rental revenue
5. Surfside Beach, Texas
$278,000 median home listing price
$42,000 annual gross rental revenue
4. Bryson City, North Carolina
$194,000 median home listing price
$32,000 annual gross rental revenue
3. Sevierville, Tennessee
$297,000 median home listing price
$51,000 annual gross rental revenue
2. McGaheysville, Virginia
$265,000 median home listing price
$50,000 annual gross rental revenue
1. Poconos, Pennsylvania
$199,000 median home listing price
$42,000 annual gross rental revenue
Real Estate Market Update: Main Takeaways:
- The housing market is softening. Now is a good time to buy or to start looking for investment properties.
- High interest rates don’t have to hinder your investment. If you can obtain positive cash flow from a property, you’ll be in an even better position once you can refinance.
- Remember, you buy real estate for cash flow, and you hold it for appreciation. The big money in real estate is made when you ride it out for two cycles.
- There are three things you need to make money: knowledge, time, and money. So, if you don’t have a lot of money, then you have to be willing to get a lot of knowledge and be willing to invest a lot of time. Now, if you have a lot of money, you still need to invest a lot of time or knowledge. If you have a lot of knowledge, you still need to invest time or money. If you have all three, you can start to make money very quickly.
Listen to this episode of The WealthBuilders Podcast: The Time is Now: Real Estate Market Update
Learn More About The WealthBuilders Real Estate Coaching Program Here
