Zillow Predicts Low Mortgage Rates Mean More People Will Buy Investment Properties
The housing marketplace is experiencing a major shift. Markets across the United States have been affected by rising interest rates, low inventory, and a cadre of potential buyers who have made the decision to wait out this economic environment.
However, in a Zillow report released at the beginning of December 2022, the company's research team notes some subtle improvements to the outlook that may snowball into a much brighter 2023. One of the key takeaways from the report is a turn toward collective housing investments among friends and families, and largely in investment properties rather than primary dwelling units. Zillow predicts that 2023 will see a surge in first-time landlords.
Mortgages come in a variety of different layouts, including fixed-rate mortgages, variable, adjustable-rate loans, and even jumbo loans. But, all of these categories have seen fewer buyers making use of them in recent times. Still, there's hope for a resurgence in the market as the economic struggles that have hamstrung the United States appear to be abating.
Mortgage rates have doubled since 2019
Zillow reports that mortgage rates have doubled since 2019, and CNBC notes that the current 6.81% is the highest rate since 2002. Rising interest rates signal hard times for homeowners and buyers; those who already own their homes are disinclined to refinance in order to conduct renovations on their property. Similarly, those looking to buy a home are often either unable or unwilling to pay the premium price to take on a home that may not give them all that they're looking for.
Zillow notes that this factor disengages buyers, forcing sellers to hold onto their homes for longer than they'd perhaps like to. All in all, these realities mean less opportunity for everyone hoping to gain something from the real estate marketplace. However, it's encouraging to note that, as with any other financial product, rates will fluctuate steadily over time and a return to low costs is quite possibly somewhere on the horizon.
Zillow estimates a normalization of the market
According to Zillow, the marketplace is signaling a normalization over the coming months. What this will mean for buyers remains to be seen — rates may drop back down to reasonable levels or plummet alongside federal economic policy aimed at restarting the sector. Bankrate also estimated in December 2022 that the Federal Reserve would likely begin to reduce interest rates in 2023, and Zillow's appraisal of the situation appears to mirror this sentiment.
Bankrate also notes that increased interest rates don't just affect a buyer's interest and ability to purchase a home. A tightened economy is bad for Americans across the financial spectrum. The pandemic, a war in Ukraine, the bursting of a long-running tech bull market, and many other factors have coalesced to create a time of economic unease. But the economy appears to be on the mend, and perhaps for the long term. Reduced interest rates should point to a market normalization, and Zillow suggests that it will present itself in new and potentially unorthodox ways.
A key predictor lies in construction focus
The focus of construction projects plays a significant role in the types of properties that are available at any given time. Home buyers may see limited options in detached home inventory as builders shift toward the construction of apartment buildings and multi-family dwellings. This is exactly what Zillow estimates is happening in the current market. Buyers looking for new real estate purchases are seeing new construction place substantial weighting on apartment buildings and hybrid structures that bring living spaces into closer contact with urban marketplaces.
These types of dwellings are great for socialites who want to make the most of the opportunities their communities have to offer, but they also make for excellent investment opportunities. Tenants are keen to rent these types of homes, and as a result, the available inventory in many local areas is skewed heavily toward apartment properties and other communal living options. These make for great investment opportunities and many people are considering their options.
Rising rent costs coupled with a weak market
The dual scenario of more affordable purchase prices and increased rent, according to Zillow, makes for a particularly valuable investment marketplace. Zillow reports that the market remains problematic for many with wages continuing to remain largely static and the cost of housing — either packaged as a purchase or rental –- remaining in an upward trajectory.
The result is a marketplace that will likely see more creative buying opportunities and combined investment strategies. The real estate market has always been a place that can be leveraged to add significant value to a homeowner's portfolio. With the market continuing to recover from multiple years of stress, there appears to be an opportunity to capitalize on the relatively low housing costs. And, with the potential for artificially reduced interest rates, there may just be an opportunity to pick up an investment property in the near future.