The real estate market over the last couple of years has been unbelievably hot—with interest rates at historically low levels and demand high, asking prices have gone up significantly year over year without signs of slowing. That is, until now. Interest rate hikes, inflation, and general economic uncertainty are putting the brakes on the housing market. Some real estate experts caution that a potential market correction, with values falling 10% to 15% below the market average, might be in store. However, it is less likely that there will be a Great Recession–like a crash in the future. Here are the indicators of a changing market and the factors that make the current situation unique.
As little as a year ago, even relatively average home listings could reliably attract multiple offers at or above asking, perhaps with contingencies waived if the property was in a particularly good location. Properties rarely sat on the market for any length of time. Now, the length of time a listing is active is growing, creating a larger inventory of homes for sale. It’s also more likely for the sale process to be drawn out through negotiations and price adjustments, signaling that the balance is clearly beginning to shift from a seller’s market to, perhaps, a buyer’s market.
What’s driving this change? Weakening demand. Some potential buyers had already been priced out of the market by the rising costs because even with rock-bottom interest rates, putting together a down payment to put an offer on a property was out of reach. Those low-interest rates had given a wider range of buyers increased purchasing power, but it also increased competition for scarce housing, which resulted in higher prices.
Now, repeated interest rate hikes by the Federal Reserve have driven mortgage interest rates up rapidly, significantly changing the math on what potential buyers can afford. At the same time, wild swings in the stock market have dampened individual enthusiasm for taking on more personal debt if it can be avoided. The result is fewer buyers on the market and more caution in the buying process.
Why is the current situation, unlike the Great Recession? Previously, poor lending standards led to a wave of foreclosures that abruptly flooded the real estate market. As a result, stricter loan approval processes were put into place that limited the likelihood of borrowers taking out mortgages for homes they truly couldn’t afford. The supply of homes now is still relatively low; the shift in the market is due to a reduction in demand instead. In addition, owners who don’t have to sell now are more likely to wait for more favorable market conditions, which will keep supply low.
A home is often one of the most significant assets making up someone’s estate. To ensure that your property is bestowed as you wish after you pass on, though, it’s essential to have a comprehensive estate plan in place. Having your estate wind up in probate increases the delay and expense of transferring assets to your heirs, diminishing the value of what you had hoped to pass on. Worse, when a decedent’s wishes are poorly understood or unrecorded, familial conflict can result in protracted legal battles and mounting fees that benefit nobody.
Changing economic circumstances are an important time to review your estate planning, or to put a plan in place if you don’t already have one. A well-thought-out plan that includes a will, trust, and other legal tools to protect your estate and your interests is one of the best ways to avoid the potential for conflict between those you leave behind, as well as minimize tax liability and eliminate the need for probate. If you’ve experienced significant changes to your personal finances, including a change in home value, updating your estate plan can save your loved ones from trouble caused by an incomplete or outdated strategy.
At Velasco Law Group, we have extensive experience in crafting estate plans that accurately express your wishes. Our goal is to determine the most effective means of passing on your assets as you wish, no matter how complex your situation is. Our attorneys offer legal services in both English and Spanish to better serve our Southern California community. To find out more about our estate planning services, or to schedule a free initial consultation, contact us here today.
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