BOULDER – At the end of January, I was in New York for Inman Real Estate Connect NYC 2016, and one of the recurring themes I noticed in conversations with my peers was the future of our nation’s real estate industry. That’s about so much more than “industry”, however. I won’t bore you with an over-the-top lesson on macroeconomics, but let’s just do a quick refresher:
When we talk about the economy, it is often expressed in terms of GNP (which stands for “gross national product”). This figure is an aggregate value, and it includes the market value of all the things we produce and sell. It’s everything from the food you eat to the car you drive, and you guessed it – your home.
Analyze this: if your home purchase is said to be the largest investment you will make in your lifetime, what kind of an impact do you think that has on GNP? Money moves by the hundreds of thousands (and often millions) per home sale. It’s a huge economic driver, and there is a trickle-down effect. We are talking about job security, the livelihood of a nation, and our collective quality of life. It’s a fascinating dynamic.
On that note, one of the speakers at this year’s event, Dr. Elliot Eisenburg, gave a very interesting presentation on economic trends in real estate and what we can expect from the market in the coming months. He served up a wealth of information and insight, I am thrilled to report to you.
In this two-part series, we’ll start by discussing how consumer borrowing habits and wage trends have affected our greater financial climate over the last year. Then, we’ll take a look at how our lifestyle choices influence the housing market.
Finance: Your wage, your mortgage, your Federal Reserve
Generally speaking, mortgage credit has been very hard to get over the last half decade, but that is slowly changing. We will probably never see the same kind of nonchalance that we saw from lenders prior to the recession, but there’s no denying that they are finally beginning to lighten up a bit. This, along with the relatively low interest rates we’ve seen in recent years, is the best explanation for the drop we have seen in the number of all-cash real estate transactions.
Anecdotal evidence of this loosening of credit is supported by the trends we are seeing in the Mortgage Credit Availability Index. Although lenders are becoming more relaxed about their lending standards, it’s important to be aware that the Fed is expected to gradually push interest rates up over the next 18 to 24 months. However, don’t let that have too much of an effect on your plans to purchase a home in the near future. Contrary to popular belief, housing sales and interest rates are not inversely related. In fact, data shows absolutely no correlation at all. So, if you’re thinking that you’d like to wait it out and see if housing prices in our area will drop, I’m sorry to say that your strategy is probably going to fail. Just when you thought we were at the top of the market, economists tell us that you can expect both volume (the number of homes being bought and sold) and price to increase by approximately 4 to 6%.
While prices are high (and expected to get higher), delinquencies and foreclosures are at an all-time low. In 2015, distressed properties accounted for only 6% of all real estate transactions in the United States. These trends are definitely affecting property flippers. If you’re in the business of buying assets below market value and turning them for a profit, you have probably noticed that the world of foreclosures is like a ghost town right now. Bad news for you, investors, but great news for the American economy.
Since 2012, the number of homeowners who are underwater on their mortgage (meaning they owe more than the property’s current market value, also known as negative equity) has also been on a steady decline.
Perhaps negative equity and bad debt situations are so few because average household debt is down. After all, the less you owe, the less likely it is that you would become delinquent on your payments. That would all make sense, but it’s counter intuitive when you consider that average household wealth is significantly less than it was 10 years ago. It would seem that our younger counterparts have adapted incredibly well to their borrowing aversion and are living very lean, budget-friendly lifestyles.
Whatever your demographic, my advice is to avoid waiting until we see that 4 to 6% hike in prices that I mentioned earlier. This is particularly true if you’re in the market for a luxury home, where 6% amounts to quite a bit more than it would for the average home. If you’re interested in learning more about the market forecast in the Boulder area and how that affects your future plans for buying or selling a home, contact me for a consultation.
To learn more about the area real estate market contact Jennifer Egbert at 303.442.3180, e-mail email@example.com or visit jenniferegbert.com.