The unstoppable increase in US real estate prices may have reached its limit. In the last quarter of 2021 alone, the value of homes in the country rose nearly 30% compared to the same period the previous year, which, along with other factors, led some analysts to speak of a “real estate bubble.” Now, after action by the Federal Reserve (FED), Specialists warn that a decrease in the value of square meters is imminent.
As market investors have predicted in recent months, The Federal Reserve (FED) of the United States decided on Wednesday to raise the interest rate that regulates the cost of money by 0.75 basis points, Put it this way in a range between 1.5% and 1.75%. This is the highest increase since 1994 and its goal is to rein in the inflation that the country is experiencing.
According to the agency France Press agency , The Federal Reserve (the central bank) specified in a statement that it plans further increases in the reference interest rates. Most FOMC members warn that, Before the end of the year, the range will increase to 3.25-3.50%. In fact, the organization’s head, Jerome Powell, estimated that a new increase of 0.75 percentage points was “very likely” in July.
What is the effect of the measure on the market for Real estate? As explained to Nation Federico Gonzalez Rocco, an economist specializing in housing, the relationship is direct: “Federal Reserve Rates It is the basis of interest rates on mortgage loans Which, in short, is one of the key inputs into the North American real estate market.”
In short, the specialist notes that the value of the asset, in this case, the homes, “depends on the future flow of revenue it can generate, discounted at an interest rate (to bring it to its present value).” “What this height does is the rate that is discounted is higher, So the value of real estate, like all assets, should go down.” He carries. In addition, he adds that higher interest rates mean higher costs when obtaining a mortgage loan, which is why he assures that demand will fall.
At the end of last year, Daniel Rotois, broker Rutois International Realty and a Miami-based financial advisor, expected in an interview with Nation That prices will collapse. This is the businessman who warned in 2006 about the end of the real estate bubble, which came to fruition in 2008. After the Fed’s action on Wednesday, the specialist does not hesitate to confirm the value of the meter before the end of the year. The box will fall.
“Last week I told all of my clients it was time to sell,” he says. His predictions are based on two main points. On the other hand, historically in the US the higher the prices, the lower the prices. Second, like brokerI usually expect changes. Until a couple of months ago, I was selling a beach apartment in two days and had several clients fighting over the unit. He expands on his speech, “Today, I have properties that were published two months ago, and no one will visit them.”
He asserts that it is increasingly common to see units being priced “because they cannot be sold” and stresses that the inflation the country is going through does not contribute positively to the scenario. Plus, he predicts something worse: “I think a recession is coming.” “If someone needs advice, this is not the time to buy a used property, and whoever has one should try to sell it because before the end of the year prices will drop without a doubt,” he adds.
It is expected that when prices begin to adjust, not all sectors will be affected in the same way. According to Mariano Cappelino, CEO of Inmsa Real Estate Investments, the square meter value will “be reduced by 20%,” though he said: “Some assets will decrease by 10% and others perhaps 30%.” What types of real estate will be affected the most? for him brokerAnd the The main losers may be the unit owners in multifamily buildings. “They’ve outgrown the 118 percent of the 2008 bubble and they’re the ones who will adjust its value the most,” he asserts.
While, Probably the least affected part is the office and selling by pieces. “It’s the same price as it was in 2008, and moreover, the demand is coming back now,” he explains. “I think he was there too bubble Very strong in everything related to middle/upper class housing, which was more in demand by the public than other states and caused an overestimate of the market,” adds Capilino.