The United States housing market has seen its fair share of ups and downs over the last two decades. While prospective homebuyers and investors went into 2022 with high hopes, things are just not going the way most of them had planned. Home prices are at all-time highs, mortgage rates have climbed above 5% for the first time since 2008, and housing demand has waned dramatically. Fortunately, there are things investors can do to maintain profitability through it all.
Remember the Biggest Mortgage Rate Increases are Behind Us
If you’re like many real estate investors, you might be feeling a sense of panic at the increases in mortgage rates this year. After all, with rates so high, you will have a harder time selling homes – especially if you generate a significant portion of your revenue from fix-and-flip projects. While the jumps in rates have been significant, the worst of it is already behind us. Real estate experts believe that current rates have already anticipated the Federal Reserve’s anticipated increases, which are expected to top out at about 6% by the end of the year. Once these rates stabilize, home sales will return to normal.
Play it Safe (For the Time Being)
When housing prices were lower and sales were booming, it made sense to take a risk here and there – and more often than not, those risks paid off. However, with mortgage rates increasing and the demand for housing falling, it’s better to play it a little safer until the market stabilizes. Some good tips here include:
- Purchasing homes in areas where demand is highest;
- Taking advantage of low-priced opportunities in locations where the market is expected to grow once the market stabilizes;
- Checking out foreclosure opportunities in the areas where you typically invest; and
- Branching out into other forms of real estate investing, such as new builds, commercial properties, and multifamily properties.
Take This Time to Do some Analysis
When the housing market is in a slump and you aren’t buying or selling as frequently as before, it’s the perfect time to do some analysis. Pull out your records from the last few years and find the opportunities that were most profitable (and least profitable) for you, then pinpoint the reasons why. Did you turn a significant profit on a sale simply because the market was doing well, or did you employ best practices that allowed you to reap the benefits? The housing market is always fluctuating, but savvy investors use what they have learned over the years to make the best of any situation.
Housing demand is down and mortgage rates are up, but that doesn’t mean you can’t be profitable as an investor. If you are feeling the pinch, remember that the worst of it has already passed and that mortgage rates are on their way toward stability. Take this time to play it safe and look back over your biggest successes as well as your biggest mistakes. Then, using what you already know, plan your next moves.