There’s a reason everyday buyers and real estate investors alike have grown increasingly frustrated with the housing market. Home prices have been sky-high for months on end, making it difficult for buyers to scoop up properties at reasonable price points.
For real estate investors looking to build income property portfolios, a cooldown of the market couldn’t happen soon enough. And new data indicates that we may be getting closer to that point.
Home price gains are slowing
In May, home prices rose 19.7% year over year, as per the S&P CoreLogic Case-Shiller National Home Price Index. At first, that might seem like a bad thing. But that 19.7% gain actually represents a smaller gain than April’s, when home price growth came to 20.6%.
In fact, May is the second month in a row of slower increases on the home price front. And it could be an indication that the housing market is starting to slow down.
Buyers have remained extraordinarily patient over the past couple of years, during which time the real estate market has sorely lacked inventory. But now, recession fears and concerns over inflation could finally be pushing buyers away.
Should real estate investors get ready to make a move?
A glaring lack of housing inventory, coupled with almost ridiculously high home prices, has made the past couple of years a tough time to purchase an income property. And the past few months have been particularly bad, given the way mortgage rates have risen.
But now that home price gains seem to be slowing down, it could spell opportunity for income property investors looking to expand their real estate portfolios. Granted, investors looking to finance an income property purchase should expect to be hit with costly borrowing rates. At the same time, many investors are sitting on solid levels of equity in their existing properties that they may be able to tap at an affordable price point to finance the purchase of a new home.
Will home prices reach affordable levels by the end of the year?
It’s fair to assume that home prices will drop between now and the close of 2022. But that doesn’t mean homes will suddenly become affordable to the average buyer.
Although May represented the second month in a row of lower home price gains, a 19.7% jump is certainly nothing to scoff at. As such, regular buyers and real estate investors shouldn’t expect many bargains to hit the market this year. At best, what they can hope for is more moderate home prices, as well as a better selection of inventory that heavily reduces the prevalence of bidding wars.
Bidding wars have been a mainstay in the real estate market over the past two years, and they’re part of the reason home prices managed to jump to such record-breaking levels. If housing supply opens up enough that buyers don’t have to compete for the same properties, it could lead to much more reasonable home sale prices — and more opportunity for everyday buyers and investors alike.
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