Despite 2022's rising inflation and interest rates, the summer of 2023 paints an interesting picture for the real estate market. Many had forecasted a housing market crash, with naysayers prophesying doom and gloom. 

But contrary to popular belief, home prices have soared. Let’s look at why that is and what your Q3 real estate strategy should be as a response. 

The Paradox of High-Interest Rates and Rising Home Prices

A point of debate and intrigue has been the increased home prices, despite interest rates reaching 18 to 20-year highs. In any other industry, raising rates would naturally deter product prices. 

We've observed this with cars and other financed items. But the housing market seems to defy this logic. Why?

Supply vs. Demand: The Age-Old Equation

The most straightforward answer lies in the supply-demand dynamics. The available inventory for homes has consistently decreased from 2019 to 2022. Multiple factors are at play here:

• The mortgage lockout effect is where homeowners are reluctant to move due to low rates.

• Building supply has been lagging, unable to meet the rising demand. The rate of home construction isn't keeping pace with new household formations. 

The Cost of Waiting to Buy

For those in the real estate and lending sectors, the concept of the "cost of waiting" isn't new. Suppose a prospective homeowner contemplates purchasing a home now versus a year later. In that case, they have to factor in the potential appreciation of the home's value and the chance of missing out on its benefits.

To illustrate, let's consider a $350,000 house. Buying it now at a 7% interest rate versus a speculated 5.75% a year later might seem beneficial at first glance. 

However, with a 10% appreciation, waiting could be more costly in the long run. This doesn't even account for the loss of one year of loan amortization.

-Cost of Waiting Summary PDF-

Rethinking Real Estate Strategy

Potential home buyers must shed the idea of grabbing deals reminiscent of 2010 or 2018 prices. Holding such notions is akin to wishing for past stock or mutual fund rates. 

The reality? We are in a market governed by supply and demand. History has shown that real estate investments often offer greater returns than many other investments, even with occasional market depressions factored in. 

Buyers must adapt to the current market scenario and recognize the opportunities it presents.

A Word of Advice for Real Estate Agents

Agents must address the misconceptions buyers may harbor about the current market. They should emphasize the missed opportunities and highlight the projections for the coming years. 

Remind buyers that we're not living in the past. The market dynamics have changed, and waiting for a "golden" moment might leave them behind.

Bottom Line

In conclusion, the real estate strategy for summer 2023 rests on understanding the market's core principles. 

As the market continues to surprise us, one thing remains certain: the foundation of supply and demand remains unshaken.