Most people have witnessed both up and down housing markets and conditions, such as buyers’ and sellers’ markets, and many situations in between. For the past few years, in many areas of the country, home prices have risen steadily, year after year. This is likely due to a variety of reasons and circumstances, including but not limited to: historical: low mortgage rates; improvement of the labor market; increased consumer confidence; the desire to own their share of the so-called American Dream; the quality performance of the US economy, including the Stock Market; etc. Many have wondered when and if we will reach a threshold in terms of house prices and why. With that in mind, this article will briefly try to consider, examine, review and discuss 5 considerations/factors that could have an impact.
1. Mortgage/interest rates: When interest rates are generally low, mortgage rates generally act in a similar way. In recent memory, I recall interest rates, as high as high teens, to today’s low levels, between 3.5 and 4.5%. When rates are low, it means potential homeowners can buy more for their money because they qualify for higher mortgage amounts. The opposite happens, when/if they go up, in the opposite direction. Therefore, if we see an increase, especially a significant one, in rates, the result will most likely be to cap or lower home prices!
two. Overall economy: The bigger the economy overall, or at least the perception of it, the better the housing market will be. When these positive conditions occur, we often see a seller’s market, because there are more buyers than corresponding homes for sale at that time. This creates, according to the Laws of Supply and Demand, that buyers have to and are willing to pay more for their homes.
3. Job Confidence: The greater the public’s confidence in the job/job market and job security, the stronger real estate conditions will be. This results in the costs, to buy, going up! When confidence falls, buyers are often more hesitant to make such a significant move and, in a buyer’s market, can result in lower home prices.
Four. Consumer Confidence: When consumer sentiment is strong, housing and real estate are generally stronger! When this falls, we witness the opposite!
5. Affordability: Pay attention to rental prices, because when more people buy, there are usually more rentals available and therefore rents stay flat and/or go down! The question is, at what point do potential buyers perceive that this becomes unaffordable?
Although, traditionally, over time, real estate has outpaced the appreciation of other assets, no one can read into the future! Smart buyers and sellers, pay close attention to all the factors discussed, as well as other relevant ones!