Thanksgiving is a time to take stock and be thankful. Although the original Thanksgiving may have had a religious purpose, today’s secular holiday is about traditions. However, it seems as if the tradition of enjoying a peaceful meal with family and friends has been increasingly difficult over the past few years. But since the election is over, let’s try to talk about something worthy of discussion (at least until the next election cycle begins), such as real estate and housing. Yes, it’s a “Real Estate Thanksgiving.”
Why shouldn’t we focus on something we all can get behind? There is a good chance that your dinner guests will include someone will be moving next year. Whether they are buying, selling, or renting a home, someone at the dinner table will be affected by such issues as housing affordability, mortgage rates, and availability of homes.
Things to talk about during your Real Estate Thanksgiving might be about mortgages, home sales, home prices, rent, maintenance, etc. The topics are seemingly endless.
Talking about mortgages during the Real Estate Thanksgiving. The current news is about mortgage interest rates. How high will mortgage rates go? Housing experts agree that mortgage rates will likely be about 5 percent next year (although the Fed just announced they may hold off on interest rate hikes after spring). Paying more interest on your mortgage may not be your idea of positively affecting home sales. However, increasing mortgage rates typically moderate home price growth because of affordability. Another silver lining of increasing interest rates is a stimulated lending environment. As a result, mortgage companies will likely further loosen lending requirements, which will increase the home buyer pool.
Real Estate Thanksgiving and home sales could focus on the reasons for the fall slowdown. Will home sales rebound this spring? You’re probably aware that home sales have dropped off during the fall. Major media outlets have grasped the news and created the meme depicting “housing bubble 2.0.” You can’t really blame them because there are many economists who are projecting bleak home sales to continue through spring.
The main reason for a disappointing 2019 forecast given by many industry insiders is affordability. I contend that this rationale is shallow and one-dimensional. There is no doubt that rising interest rates and increasing home prices are on the minds of home buyers. However, the lack of home sale inventory is a dimension that is often forgotten when discussing home sales and rentals. The lack of available homes for buyers and tenants to choose has forced many into fierce competition. The result has been upward pressure on home prices and rents.
You have to also consider the economy at your Real Estate Thanksgiving. The strength of the economy is an aspect affecting the housing market that many haven’t discussed. Whether you want to admit it or not, the economy is the strongest it has been in decades. Consumer outlook is optimistic. Home buyers and renters have expressed confidence about their job prospects too. Employers are competing for talent, influencing the highest wage increases in over a decade.
Commenting on the economy, First American chief economist Mark Fleming believes that the economy will be a major force in the housing market (How Will a Potential September Rate Hike Impact Existing-Home Sales?; blog.firstam.com; September 18, 2018). One of the features of his analysis for 2019 is “It’s the Economy and First-Time Home Buyer Demand, Stupid.” He described a pent-up demand from a wave of millennial of first-time home buyers who will be in the market next year.
Fleming explained that home sales slump during an adjustment period that home buyers undergo when interest rates increase. The same thing occurred in 2010 when rates increased from 4.5 to 5 percent. However, the economy was struggling at that time, and home sales were stagnant. Fleming described First American’s positive housing forecasts overcoming rising interest rates, saying,
“According to our Potential Home Sales Model, the boost from the strong economy and first-time home buyer demand should overcome any downward pressure from rising rates on home sales.”
Original article is published at https://dankrell.com/blog/2018/11/21/real-estate-thanksgiving/
Copyright© Dan Krell
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