National Snapshot: How's the Real Estate Market?
National
Snapshot: How’s the Real Estate Market?
The U.S. unemployment rate is at a 50-year
low, and consumer confidence remains high. In fact, the University of
Michigan’s latest Surveys of Consumers
found that Americans have their most positive personal finance outlook since
2003.1
However, if you follow national news, you’ve
probably heard speculation that we could be headed toward a recession. Global
trade tensions and a slow down in the GDP growth rate have sparked volatility
in the stock market, leading to economic uncertainty.
Given these differing signals, you may be
wondering: How has the U.S. housing market been impacted? Where is it headed?
And more importantly … what does it mean for me?
MORTGAGE
RATES ARE NEAR HISTORIC LOWS
In August, Freddie Mac reported that the
average 30-year fixed mortgage rate hit its lowest level since November 2016,
falling to 3.6%, down a full percentage point from a year earlier.2 Variable
mortgage rates also fell when the Federal Reserve cut interest rates at the end
of July for the first time since 2008.3
This was welcome news for many in the real
estate industry. Freddie Mac predicts that low interest rates and a robust job
market will help the housing market remain strong despite the threat of
recession.
“There is a tug of war in the financial
markets between weaker business sentiment and consumer sentiment,” said Sam
Khater, Freddie Mac’s chief economist. “Business sentiment is declining on
negative trade and manufacturing headlines, but consumer sentiment remains
buoyed by a strong labor market and low rates that will continue to drive home
sales into the fall.”2
What
does it mean for you? If you’re looking to buy a home,
now is a great time to lock in a low mortgage rate. It will shrink your monthly
payment and could save you a bundle over the long term. Or if you plan to stay
in your current home for a while, consider whether it makes sense to refinance
your mortgage at today’s lower rates.
PRICES
CONTINUE TO RISE AT A MODEST PACE
According to the S&P CoreLogic
Case-Shiller Indices, housing prices continue to rise. But the rate at which
prices are rising is slowing down. For May 2019, the National Home Price Index
rose by 3.4%, down from 3.5% the previous month.4
Of course, national averages often don’t
present the whole picture. Some markets have seen modest declines, while other
areas are witnessing double-digit increases. The key differentiating factor in
most cases? Housing affordability.5
Since 2012, home prices have increased at
about three times the pace of wages, according to National Association of
Realtors chief economist Lawrence Yun.6
“Housing unaffordability will hinder sales
irrespective of the local job market conditions,” said Yun. “This is evident in
the very expensive markets as home prices are either topping off or slightly
falling.”5
But what about all this talk of a recession?
Will we see housing values plummet like they did in 2008? Economists say no.
If we look at history, the real estate crash
experienced during the Great Recession isn’t typical.
The recent Housing
and Mortgage Market Review report from Arch Mortgage Insurance provides
data to support this. “What we found is that the next recession is likely to be
far less severe on the housing market than the last one. It’s not that this
time is different; it’s that last time was really different from historic
norms.”6
“A large decline in national home prices is
unlikely in the next recession,” Arch economists write. “A persistent housing
shortage should help cushion home price declines.”6
What
does it mean for you? If you have the ability and
desire to buy a home now, don’t let the threat of a recession hold you in
limbo. The market is cyclical, and it will experience ups and downs. But over
the long term, real estate has consistently proven to be a good investment.
STARTER
INVENTORY REMAINS TIGHT WHILE LUXURY MARKET SOFTENS
As we’ve seen in the past, it’s become a tale
of two sectors.
The low-end of the market remains highly
competitive as buyers compete for affordable housing. A lack of new
construction during the last recession led to an undersupply of starter homes.
This trend continues—despite growing demand—due to a lack of skilled workers,
rising land and material costs, and a slow permitting process in many areas.7
The result? There’s a shortage of homes for
sale that Americans can actually afford to buy.
The luxury market, on the other hand, has
softened. Economic uncertainty, changes to tax laws, and rising prices have
slowed demand. Plus, to recoup their higher costs, builders flocked to this
segment—causing an overabundance of supply in some areas.
“If you're selling an entry level home, you're
probably still looking at a pretty competitive market in most places,”
according to Danielle Hale, chief economist at Realtor.com. “But if you're
selling a more expensive home you probably have to adjust your expectations.”8
What
does it mean for you? Move-up buyers, you’re in luck!
If you’re ready to trade in your starter home for something more luxurious, you
may get the best of both sectors. We’re still witnessing strong demand for
entry-level homes, giving sellers the upper hand. At the same time, buyers of
high-end homes are finding a greater selection (and more negotiating power)
than they’ve had in years.
INVESTORS
ARE BUYING HOMES AT RECORD LEVELS
There’s one group that hasn’t been slowed down
by lack of affordability or economic uncertainty: investors.
According to CoreLogic, investors are
purchasing homes at a record pace. In 2018, the share of U.S. homes bought by
investors reached 11.3%—the highest level since the company began tracking
nearly 20 years ago.9
Notably, this increased activity wasn’t led by
institutional investors, but instead by small and individual investors focused
on the starter-home segment.7 Declining interest rates and an uncertain
stock market have led investors to flock to real estate as they seek out
greater stability and higher returns.
“With declining mortgage rates … they’re
searching for a better return for their money,” said NAR chief economist
Lawrence Yun.10
What
does it mean for you? If you’re looking for a way to
“recession proof” your money, you might want to consider investing in real
estate. People will always need a place to live, and (unlike the stock market)
a rental property can provide a steady source of cash flow during uncertain
economic times.
I'M HERE TO GUIDE YOU
While national real estate numbers can provide
a “big picture” outlook, real estate is local. As local market experts, we can
guide you through the ins and outs of our market and the issues most likely to
impact sales and home values in your particular neighborhood.
If you have specific questions or would like
more information about how market changes could affect you, contact me to
schedule a free consultation. I'm here to help you navigate this shifting
real estate landscape.
Sources:
4. S&P Dow Jones Indices -
https://us.spindices.com/documents/indexnews/announcements/20190730-965771/965771_cshomeprice-release-0730.pdf?force_download=true
https://us.spindices.com/documents/indexnews/announcements/20190730-965771/965771_cshomeprice-release-0730.pdf?force_download=true
5. National Association of
Realtors -
https://www.nar.realtor/newsroom/metro-home-prices-increase-in-91-of-metro-areas-in-second-quarter-of-2019
https://www.nar.realtor/newsroom/metro-home-prices-increase-in-91-of-metro-areas-in-second-quarter-of-2019
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