The "lock-in effect." Many homeowners are hesitant to sell due to low mortgage rates secured during the previous housing and refinancing boom of 2020-2021.
As these homeowners are reluctant to list their properties for sale, available inventory decreases, exacerbating housing shortages.
However, as homeowners pay down mortgages and home values increase, the gap between mortgage balances and home equity widens, potentially reducing the impact of the low interest rates in their decision-making. Over time, this might lead to more homeowners considering selling as their equity grows.
In the midst of all this, while the Fed may pause rate cuts, the ongoing effects of tariffs could create economic pain, which is often necessary for long-term solutions. The dynamic relationship between these factors means we need to stay well-informed and adapt our strategies accordingly.
The dirty little "not so secret" in real estate is: bad for the economy the economy, often is better for the interest rates, Again, we lived this in 2020-2021 when the global pandemic that caused a massive job loss-economy; saw some of the lowest interest rates and highest real estate sales in my lifetime let alone my career. Today, as I understand it, The Federal Reserve is focused less on rising prices caused by tariffs and more on the job market and overall economic strength.
Concerns have emerged that tariffs could negatively impact job creation by hindering imports and exports. Higher prices for car and lumber could lead to decreased purchasing, potentially worsening existing supply shortages in housing.
Ultimately, prolonged trade wars could harm the broader economy, which might inadvertently benefit interest rates. We're in a unique position where deteriorating economic conditions could actually lead to lower mortgage rates, which would help alleviate the inventory challenges in the housing market.
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