Housing Vs. Construction: Case of Contradictory Situations 2022

Housing Vs. Construction: Case of Contradictory Situations 2022

Patrick Iturra, Asset Manager at Estate Investments Group

The US housing prices and rent have been rising for a brief time. Interest rates and house prices were never this high. But in contradiction to this, construction work and house sales are on the decline, hinting towards an upcoming recession.

Rent and housing price hikes are the most significant contributors to the increase in the consumer price index. Most real estate developers are putting a stop to the production process. Sales activity is also on the decline. As a result, this has resulted in a big contradiction.

The profit of the construction business is meager, as there is a high capital requirement. Most of the supply shortage leads to declining earnings due to rising real estate prices.

The new inventory of unfinished projects is increasing, and most sales come from houses ready for sale. But, the number of such houses/projects is deficient.

What’s the reason for this low inventory of for-sale houses?

The straightforward answer to this would be a monetary policy by the Federal Reserve that creates a lock-in effect for the housing market.

The rise in interest rates makes the homeowners retain their attractive mortgage or buy another house. Instead, most homeowners are investing in their home improvement for time to pass.

Many buyers who intend to buy a house have postponed their decision to buy a new home.

The current inflation rate also contributes to this lack of demand, especially for investors. Also, if the rates continue to increase over time, buyers can lock in at today’s interest rates, and if they fall, they can refinance.

We can also say the rates have doubled since March, and this is the highest interest rate after the 2008 crisis. The rise in rates and prices have made it difficult for the average consumer to buy a home.

Also, most home buyers can afford to pay the mortgage payments, but still, they cannot pay the down payment amount, as this is the biggest hurdle to overcome.

As a result, house sales have fallen by 25%. As per the national association of realtors index, home affordability is at a 33- year old low. Most home buyers are finding it difficult to qualify for the high standards of mortgage loan requirements.

The median housing price has reached $440,000 since quarter 2 of 2022.

The median price reached $440,000 in the second quarter of 2022. In July, the median existing-home sales price was $403,800. Although this represents a 10.8% increase from a year earlier, it reflects a $10,000 decline from June 2022’s record high of $413,800.

The overall housing supply shortage is also contributing to the slowing housing market. Also, a recession on the way might decrease the interest rates and help with the lock-in effect. This will drive the existing homeowners to sell their homes, as there is no benefit in keeping them at lower housing interest rates.

House inventories will increase, and there will be no problem with the lack of housing inventory. Therefore, the housing inventory shortage will reverse quickly, and the prices will potentially change.

What does this mean for the future?

Real estate has been one of the most significant assets in the portfolio of people who have built wealth and passive income in the long run.

What does this mean for the future?

Real estate is one of the most critical assets in the portfolio of people with accumulated wealth and long-term passive income.

You must wait for inventories to rise and put your money to work investing in the right real estate; By proper real estate, I mean property that will generate passive income and wealth for you in the long run.

In the meantime, what should you do to be prepared for the new real estate inventories? Create other cash flow channels. The best investment is your education and knowing the changes in the market. I suggest you read this article on Investments in the Metaverse, Virtual Real Estate.

It takes a lot of research to find and invest in a property or a good investment vehicle that will get you there. I can help you with this. All you have to do is contact me Here!

Business development is the ideas, initiatives, and activities that help improve a business. My experience results in your business’s increased revenue, expansion, and profitability by building strategic partnerships and making strategic business decisions.

I don’t sell houses. I grow your Assets. Patrick Iturra, Asset Manager at Estate Investments Group

Picture of Patrick Iturra

Patrick Iturra

Leave a Reply

Start Real Estate Investing: Get Your Free No-License Guide

Embark on Your Journey as a Real Estate Investor. Please fill out the accompanying form, and in return, you will receive a complimentary, easy-to-follow PDF guide on initiating your venture into the lucrative realm of real estate investment. No Real Estate License is required.  


Recent Posts

Sign up for our Newsletter

Click edit button to change this text. Lorem ipsum dolor sit amet, consectetur adipiscing elit