The housing market has shown new strength lately. Mortgage rates are down and mortgage applications are up.
But one real estate industry expert tells ConsumerAffairs that conditions are about to get even better for people who have been priced out of the housing market over the last year. Aaron Wagner, CEO of Development at Axia Partners and founder and managing partner at Wags Capital, predicts home prices are about to undergo a dramatic reset.
“Higher interest rates changed everything,” Wagner told ConsumerAffairs. “Some of these people who could have afforded a $700,000 home when rates were low might now barely be able to afford a $250,000 condo.”
Wagner doesn’t expect some type of systemic event like the 2008 housing market crash but he does expect similar home price declines. As long as mortgage rates remain above 6% he says there will simply not be enough buyers to absorb the inventory of new and existing homes.
Where the opportunities will be
Wagner says some of the best opportunities will be in commercial real estate but he says small residential investors and people who want to purchase a home to live in will also see lower prices. It’s simple economics, he says. It was abnormally-low interest rates for 10 years that allowed home prices to hit record highs.
“As the good terms (low interest rates) go away then home values are going to sink,” Wagner said. “If prices are high and terms are high, nobody can buy. What that will do is force a softening of pricing.”
The million-dollar question, of course, is exactly when this is going to happen. Wagner expects the process to begin in the second quarter of this year. By the third and fourth quarters, he says buyers will regain a lot of their leverage.
“When these prices soften I think that’s when there’s going to be an opportunity for investors and for homebuyers – regular everyday people,” he said.