Navigating the housing market while facing challenges can be a daunting task, especially in times of economic uncertainty. Navigating through these challenges often arises when individuals seek to buy or sell property. However, with the right strategies and expert guidance, you can successfully navigate the housing market challenges.
As discussions about a potential housing market crash in 2023 resurface, it’s natural for investors with memories of the 2008 real-estate collapse to feel a sense of unease and apprehension. The looming question on everyone’s mind is whether soaring mortgage rates could lead to a significant decline in American home values and trigger a collapse in real-estate stock prices.
However, the answer to this complex issue is far from straightforward. While challenges in the housing market pose difficulties for American families, they can also present opportunities for value investors, dividend collectors, and enterprising individuals willing to explore real-estate stocks.
The Real-Estate Seesaw
The current scenario in 2023 can be described as a real-estate seesaw. Home prices are on the rise, and so are mortgage interest rates, leading to a situation that evokes memories of the 2008 housing crisis. This dynamic was, to some extent, inevitable, given the series of interest rate hikes by the Federal Reserve, pushing the annual 30-year mortgage rate towards an unprecedented 8% (as per a recent report citing 7.75%).
This surge in mortgage rates has turned the American dream of homeownership into a daunting challenge. Current homeowners who locked in mortgage rates at around 3% just a few years ago are understandably hesitant to sell their homes and purchase new ones at interest rates of 7% to 8%. Consequently, a supply-and-demand imbalance has emerged, resulting in abnormally high home prices.
In this context, it’s akin to a seesaw, with rising home-loan rates and dwindling mortgage applications because many Americans are finding it increasingly difficult to meet their financial commitments. Against this unsettling backdrop, government-backed mortgage lender Fannie Mae has issued a warning that U.S. home sales and mortgage-loan originations are likely to slow significantly in 2023 and continue to decline in 2024.
To add to the concerns, the National Association of Home Builders (NAHB)/Wells Fargo homebuilder sentiment index revealed a year-over-year decline in September, falling below the median forecast of economists. Moreover, a reduction in prospective buyer traffic was observed in September, indicating a slowdown in both builder sentiment and buyer enthusiasm.
Is a Real-Estate Crash Inevitable in 2023?
With potential homebuyers delaying their purchases until long-term rates become more favorable and the Federal Reserve showing no signs of immediate interest-rate cuts, the specter of 2008 appears to be looming large. Does this mean that a real-estate collapse is the only possible outcome?
Not necessarily. It’s essential to remember that the Federal Reserve possesses the capability to respond to financial-market downturns, whether in housing, stocks, or other sectors, by implementing rate cuts. A recent example of this would be the Fed’s shift from rate hikes in late 2018 to rate cuts in early 2019 in response to a sharp stock-market correction.
In other words, the Federal Reserve is closely monitoring the situation and can intervene swiftly if necessary. Furthermore, today’s financial markets are highly efficient, and if a real-estate market crash were imminent, it should have been anticipated and reflected in home and stock prices by now.
Indeed, within the stock market, there has been some adjustment to these possibilities. If you believe in the age-old adage that volatility presents opportunities, it may be a prudent move to consider purchasing real-estate stocks that nervous traders are offloading.
Real-Estate Stocks Worth Exploring
It’s crucial to note that a real-estate stock crash remains a possibility. Therefore, having a well-defined exit strategy is advisable in case these stocks continue on their downward trajectories.
However, consider starting with well-established Real Estate Investment Trust (REIT) leaders known for their dividend payouts. One such option is Realty Income Corp. (NYSE:O), a company that generates cash flow from a vast portfolio of over 13,100 real estate properties. Realty Income Corp. has a strong history of increasing dividend payments and offers an attractive forward annual dividend yield of 6.19%.
Another stalwart in the REIT sector is Simon Property Group (NYSE:SPG), focusing primarily on shopping, dining, and entertainment business properties, including mall-based stores across the United States. Despite a recent decline in SPG stock, Simon Property Group provides loyal shareholders with a substantial forward annual dividend yield of nearly 7%.
For investors interested in more indirect real estate opportunities, consider mortgage originator Rocket Companies (NYSE:RKT) and home-improvement retailers Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW). Regardless of your approach, the real-estate stock market in 2023 is likely to present various opportunities for both contrarian investors and those seeking passive income. Be prepared for potential buy-low, sell-high moments in the real estate sector, but always approach them with a strategic and informed perspective.
