No matter what sectors you’re invested in, it’s crucial in 2023 to keep a close watch on the U.S. housing market. If home prices move higher as expected, there will likely be ripple effects throughout the economy and financial markets.
How much more expensive could homes get? One group of real estate experts is bracing for notable upward price pressure. However, there’s also some good news to offset the troubling housing market data.
Housing Market Alert: Home Prices Set to Push Higher
In its recent meeting, the Federal Reserve hinted at “higher for longer” interest rate policy. This could involve upward pressure on the interest rates that people in the U.S. would pay on their mortgages. Believe it or not, the 30-year fixed mortgage rate recently reached 7.75%.
Consequently, the housing market is tight, as people who secured much lower mortgage interest rates years ago are reluctant to sell their homes and buy new homes with higher interest rates. Thus, the supply of available homes in the U.S. is expected to remain low for the foreseeable future.
Amid this backdrop, economists with Zillow issued a forecast that home prices would increase 4.9% by August 2024. That’s a hard pill to swallow for prospective homebuyers, no doubt.
Is this a reason to panic? Not necessarily. Zillow economists’ previous forecast was for home prices to increase 6.5% by July 2024. Furthermore, the economists have observed a “late-summer uptick” in U.S. home inventory levels.
What Does This Mean for Investors?
If home inventory levels aren’t crashing, then perhaps there’s no need to lose sleep over home-price dislocations. Still, it’s quite possible that a tight housing market will keep home prices high for a while.
For investors, there’s probably no urgency to modify their portfolio strategies yet. However, it might not be a bad idea to lighten up on real estate stocks like Realty Income (NYSE:O) and Rocket Companies (NYSE:RKT). And, as always, diversifying one’s portfolio is a reasonable protective strategy.
On the date of publication, David Moadel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.