The real estate market has been on the rise for the past 2 – 4 years, depending on the area, after a collapse in 2007 – 2008. Economic recovery has remained on course for the 8th year this year, and there are a lot of questions running through investors’ minds.
The main question is: how stable is the real estate market in the USA?
And this isn’t an easy question to answer. There are really strong markets as well as markets that seem to be on the brink of a bubble. One of those markets is Southern California. In this market, condo prices are up over $250,000 in the past 5 years, putting the average price of a condo at $500,000+.
First-time homebuyers can’t keep up with the rising prices, according to some reports.
Yet the area is expected to have prices increase for the next 2 – 3 years before it starts to level off. Many buyers feel as if the market is on the cusp of a bubble, and there is a lot of debate on the topic.
The economy is improving, but the income growth for households is growing much slower.
So there’s some concern for prices rising too quickly to be sustainable for potential homebuyers – a major issue.
Investors who purchased real estate early enough will find that real estate prices will continue to rise. Redfin suggests that the median sales price will rise 5.3% in 2017, down from 5.5% in 2016.
Zillow estimates the average home price will rise 3.2% between November 2016 to November 2017.
There are a number of reasons for prices continuing to rise, including:
– Inventory levels continue to remain limited, meaning that prices are being inflated simply because there isn’t enough inventory on the market to meet demand.
– Economic results show a strengthening economy resulting in prices rising.
In respect to prices, the housing market will remain stable through 2018 with an expected slowdown to occur. Investors will find that the market provides a great return on investment.
But stability can also be judged on affordability.
From a buyer’s perspective, the market is very tight right now with little inventory and soaring prices. This leads investors on a path of trying to find the best deals possible – it’s a difficult path to success.
Shortages in low- to moderate-priced homes is expected to continue, leaving many buyers out in the cold. Starter homes will remain low in inventory and this is expected to make the market a difficult one for buyers.
So, what does this all mean?
– Investors are in a market where growth is expected to continue at a rapid pace, making the return on investment even higher.
– First-time buyers will have a harder time as the market price stability is rising too fast for people to catch up.
Mortgage rate volatility is expected to remain strong. The rates remain low compared to historic standards, but they’re expected to continue to rise. Experts suggest that the rates in 2017 will vary between 3.75% and 4.6% – both not bad rates.
And there is also the Federal Reserve, which has raised interest rates twice in 2017 and the potential for an additional rate hike at the end of 2017.
Raising interest rates will have an impact on mortgage rates, causing a few things to occur:
– First-time buyers will have to deal with higher rates
– Investors will have higher costs when investing in real estate
There’s also the threshold where rates become so high that people would rather rent than buy a home. This is always a concern, but we’re far from this threshold at the moment. In Honolulu, for example, this threshold is 5.3%, while in San Diego, CA and Newark, NJ, this rate is 7.2%.
You also have to consider the political aspect in the United States.
This year has ushered in a new President in Donald Trump. The Republican president has promised to roll back regulations put in place in the Dodd-Frank Act. If these regulations are loosened or removed, this will mean:
– Credit availability increases
– Banks being able to lend more freely
This might lead to the same disruption in the housing market experienced in 2007 and 2008, but in the meantime, a loosening of regulations makes it easier for investors to land real estate and will make it easier for borrowers to get into a home.
The housing market across the country is another thing to consider. There are places, such as the Boulder, CO, area where home prices are up 300% in the past 25 years. Prices in the area haven’t dipped since 1991, which is great for investors and home owners.
Stability is being seen in:
– Western areas
– Midwestern states
Non-coastal states are experiencing housing stability, too. Areas of the country which are experiencing the most stability include:
– Austin, TX
– Midland, TX
– Fort Collins, CO
– Boulder, CO
– Denver, CO
– Billings, MT
– Missoula, MT
– Bismark, ND
– Grand Forks, ND
All of these markets remain the most stable in the country at the moment. When you look at the stability of the real estate market in the United States, you need to also consider region and county.
We’re seeing many regions where prices are remaining stagnant, while in other regions, the housing market is booming. Big cities and the proximity to jobs is a major factor for homebuyers this year.
And we’re even seeing areas, such as Western North Carolina, where the region is starting to experience a boom. The job prospects in the area are nil, but a lot of retirees are coming to the area to retire in a relatively affordable area of the country.
Competition is expected to rise, with 2017 home sales expected to occur much faster than in 2016 when the average home was on the market for 52 days.
The market is expected to remain on a path of growth for the next 2 – 4 years before starting to experience some form of correction. In the meantime, the market will remain very tight for buyers and profitable for the deal-seeking investor.