The mass layoffs at tech companies in the U.S. could put a strain on the local housing market. The layoffs, which were triggered by the Federal Reserve’s interest rate hikes, could cause buyers to lose confidence in the housing market and force them to settle for smaller down payments.
Despite the various factors that affect the housing market, such as affordability and confidence, the demand for housing in tech-heavy areas is expected to decrease in the near term. Many potential homebuyers might not be able to afford to purchase a home due to the current economic situation.
Some of the most immediate negative effects of the current economic situation on the housing market are the collective psyche of the community. Several tech companies have recently laid off thousands of employees due to the rapid growth of the coronavirus pandemic.
The rapid economic growth was largely attributed to the low-interest rates and the stimulus checks issued by the Trump and Biden administrations. After the Federal Reserve started to raise interest rates, revenue at tech companies started to decline.
Some of these companies, such as Amazon, Meta, and Twitter, have also started to implement cost-cutting measures. The layoffs at tech companies could put a strain on the local housing market. After a two-year boom, the housing market started to experience a larger decline.
After months of historic growth, mortgage rates started to drop. Once the Labor Department reported that inflation was lower than expected, the 30-year fixed rate mortgage fell to 6.61%, its lowest level in more than four decades. Despite the lower interest rates, the number of homes that were under contract and the number of deals that were completed in October was still at record lows.
In San Jose and San Francisco, home sale cancellations were also increasing. According to Chen Zhao, Redfin’s economics research lead, the actions taken by the Fed to control inflation have caused the housing market to slow down at a faster rate than it did during the financial crisis.
The lower interest rates are expected to continue to support the housing market in the coming months. If inflation continues to drop, potential buyers might be more inclined to purchase and sellers might be less inclined to cut their prices.
Dil Bole Oberoi
