I am regularly watching data in the real estate market for trends, both nationally and locally. Focusing on real estate development and investments prior to 2008 and barely surviving the real estate market crash of 2007/2008 (as was the case for most real estate developers and investors), I decided that I don't ever want to find myself in that exact position again. Almost no one knew when the runaway train of the 2004-2006 market would end, and its abrupt crash was devastating and was an instrumental part of one the longest and worst recessions in US history. Maybe some of these insights into the current market will be helpful, sorry for being such a numbers geek…
How strong is the current real estate market upswing ?
Lets look at some numbers to see how the real estate market is fairing nationwide. Existing home sales were up 5.1% nationwide in March over February.
Compared to March of 2016, sales were slightly greater by 1.5%. Sales prices were up 5.7% compared to March 2015. Only three states showed negative price growth: Connecticut, Rhode Island, and New Jersey. Pending home sales (those in escrow with executed purchase agreements scheduled to close) are up significantly, and have been up every month since the fall of 2014 a sign that growth in the real estate market continues despite low supply of homes on the market (currently approx. 4 months locally) and continued trending downward of days on market. New home sales have continued an upward trajectory now for 13 months in a row, even though we haven't built enough homes to keep with the formation of new households since 2007, which may cause a housing shortage in the future.
Will interest rates rise in the near future affecting sales activity or are they likely to hold closely to current levels?
According to a report recently released by the FHFA (The Federal Housing Finance Agency) that regulates Fannie Mae, Freddie Mac, and 11 Federal Home Loan Banks, the national average on all Mortgage rates for existing homes trended down slightly from February to 3.73% in March. This compares to 3.8% in March of 2015. For 30 year fixed rate conventional mortgages, the rate was down from 4.11% in February to 3.95% in March. With signs that recent economic growth has slowed a bit, the Federal Reserve who controls monetary policy that affects interest rates has said that in the short term they will not likely raise rates. They are indicating that interest rates will rise in 2017 and 2018 (possibly beginning in late 16’) which could slow sales in the real estate market, however interest rates are only one factor. My personal opinion is that anytime you can lock in a fixed interest rate of under 5% for 30 years or more you are borrowing inexpensively.
There are a lot of numbers here, but in summary it appears that short of a major economic downturn (none estimated to be on the horizon), we should see a fairly stable housing market over the next 23 years.
What about our local real estate market? Real Estate markets are very localized. The national trends can have an impact on the local market, however local employment, and local growth trends tend to be bigger factors as to the strength of the local real estate market. In my next article I will explore the local market and its current trends.