As the real estate market softens, opportunity knocks

Tim Whitney

The real estate market in Grand Junction started to slow in the second quarter primarily due to the recent increase in interest rates.

Over the past few months, interest rates on residential and commercial loans have increased from the 3 percent to 4 percent range to the 5 percent to
6 percent range. Rates are expected to move even higher. 

The cost of borrowing has been pushed up by the jump in U.S. Treasuries as the Federal Reserve tries to control inflation, which is now running at a more than 40-year high. With the cost of living continuing to climb, it looks like the Fed will increase its short-term interest rate again at its July 26 and 27 meeting, maybe as much as 1 percent.

According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3 percent in June on a seasonally adjusted basis after rising 1 percent in May.  Over the past year, the all-items index increased 9.1 percent before seasonal adjustment. 

The Producer Price Index (PPI) for final demand, a measure of wholesale prices, increased 1.1 percent in June. Prices for final demand goods rose 2.4 percent, and the index for final demand services advanced 0.4 percent. Final demand prices moved up 11.3 percent for the 12 months ending in June. Typically, when the PPI goes up, retail prices follow. 

With the cost of everything going up and without cheap money flowing, demand for real estate slows.
The inventory of available properties will increase, which in turn should drive prices back down to previous levels —meaning closer to equilibrium.  

This is where opportunity knocks. Instead of submitting an offer on a property you wish to buy at above asking price because you’re competing against other offers, you’ll soon be able to buy the property you want at a more palatable price.

While I expect the real estate market to continue softening for the remainder of this year, I also expect the future to hold more opportunities for buyers than sellers.  After all, sellers have had the upper hand for the last few years, so now it’s the buyers turn.