The U.S. housing market has been in the news a lot recently, as home sales and prices have started to decline after a boom through the Covid-19 pandemic. In an attempt to slow inflation, the U.S. Federal Reserve (or the Fed) has increased interest rates, which directly affects home prices and affordability — higher interest rates mean more expensive mortgages, which can be a deterrent for home buyers. Homeowners may see their home values decline as there are more houses on the market than last year and first-time home buyers consider waiting until next year to buy. The pace of building new homes has also slowed, which has lessened the impact.
While inflation and other economic concerns have a clear impact on small businesses, the housing market can have a slightly more nuanced effect as well. Read on to find out the interest rate hike and small business, as well as the housing market’s impact.
How Does the Housing Market Affect Small Businesses?
The small businesses that are most directly affected by a declining housing market are those that deal in home building, selling, and maintenance. As home sales decline, building tends to slow down, and the people involved in the process may not have as much work as they previously had. While construction was impacted by supply chain issues due to the pandemic, they’re now feeling the second punch of a slowdown in the real estate market. This can affect contractors, builders, designers, and suppliers, as well as realtors, carpenters, landscapers, and even HVAC professionals.
Another way that small businesses are affected by rising mortgage rates and a decline in real estate sales is in how hard it is to get business financing. Many small business owners use their mortgage or home equity as collateral for a small business loan, and with declining housing prices, they may be less likely to be able to secure capital through that medium.
A somewhat subtle effect that a volatile housing market has is on spending habits. As their home values decline, homeowners are less likely to want to spend money in other places. This is also true of business owners — as their own real estate values go down, they may be less likely to want to spend money on their business and instead save it for a possible recession.
What Will the Housing Market Look Like in 2023, According to Industry Predictions?
Most experts are predicting that the housing market will get worse in 2023, with high inflation and higher mortgage rates still driving a decline in real estate. But many think the decline will flatten out in 2023 and start to look better in 2024.
The National Association of Realtors (NAR) follows this line, with Chief Economist Lawrence Yun advising that there won’t be too big of a decline and that home prices could rise slightly in 2023, as long as rates stay at 7%. He believes that most of the country will see home prices stay the same because the number of homes on the market is still low.
Will House Prices Go Down in 2023?
The independent research firm Capital Economics released a study that forecasts that home prices in the U.S. will go down by about 8% in 2023, but most buyers will still be priced out of the market. They also predict that by the end of 2023, mortgage rates will stabilize at 5.75%, down from the 7% average rate we’re seeing at the time of writing. They also predict that rent will fall half a percentage point in 2023, due to new construction on new homes.
Did the Housing Interest Rate Increase Impact Local Small Business Spending?
Although the numbers aren’t in yet regarding how the housing interest rate cost affected small business spending, most economists predict that it will decrease rather than increase. According to Business News Daily, 70% of small business owners cited rising interest rates and their effects on cash flow as something they’re concerned about.
What Small Businesses Are Impacted the Most by Interest Rate Hikes?
The small businesses most impacted by interest rate hikes are those that need to secure financing, either as startups or to run their business. Higher interest rates often mean more expensive small business loans, which can make it harder for new entrepreneurs to get funding to start new businesses or for existing small businesses to get lenders to give them loans for expanding inventory, adding new locations, or increasing equipment, just to name a few.
Will 2023 Be a Good Year to Buy a House?
2023 may not be a good year to buy a house, even if prices fall. The Federal Home Loan Mortgage Corporation, or Freddie Mac, projects that the average 30-year fixed-rate mortgage will probably increase to 6.4% in 2023 — up a percentage point from 2022. This would mean that a $200,000 home would cost $23,000 over the span of the loan. But with a bigger supply of multi- and single-family homes coming onto the market in 2023, and with rates stabilizing over the course of the year, 2024 may shape up to be a better time to get into homeownership for many, and gives more time to save up for a down payment.
Are Banks Still Loaning to Small Businesses in 2023?
The good news is that banks are still loaning to small businesses, and this should continue through 2023. While business loan rates are still high and may rise even more going into 2023, there’s a good chance they’ll start to drop further into the year. Businesses with good business credit are still going to get better rates and terms than those with less savory scores, so it’s a good time to learn how to establish business credit. Business credit cards can help businesses that need to get some wiggle room in their cash flow, too.
You can learn more about which financing options your business is most likely to qualify for with Nav. Using your business data and our insights, you get exclusive personalized recommendations on loans, lines of credit, and credit cards. Sign up with Nav today to see your best options today.
This article was originally written on December 1, 2022 and updated on August 14, 2023.