What is the Best Investment for Americans?Some are reporting that there is trepidation regarding the real estate market in the United States. Apparently, the American people are quite comfortable
2 Factors To Watch In Todays Real Estate Market
When it comes to buying or selling a home, there are many factors you should consider. Where you want to live, why you want to buy or sell, and who will help you along your journey are just some of those factors. When it comes to today’s real estate market though, the top two factors to consider are what’s happening with interest rates & inventory.
Mortgage interest rates were on the rise for the majority of 2018, before slowing to where they are now, around 4.3% according to Freddie Mac’s Primary Mortgage Market Survey. The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power. Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.
The chart below demonstrates the impact rising interest rates would have if you planned to purchase a $400,000 home while keeping your principal and interest payments between $1,800-$1,900 a month.
With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 4.6% by the end of next year.
A ‘normal’ real estate market requires there to be a 6-month supply of homes for sale for prices to increase only with inflation. According to the National Association of Realtors (NAR), listing inventory is currently at a 4.2-month supply (still well below the 6 months needed), which has put upward pressure on home prices. Home prices have increased year-overyear for the last 86 straight months.
The inventory of homes for sale in the real estate market was on a steady decline and experienced year-over-year drops for 36 straight months (from July 2015 to May 2018), but we are starting to see a shift in inventory over the last eleven months.
The chart below shows the change in housing supply over the last 12 months compared to the previous 12 months. As you can see, beginning in June, inventory levels have started to increase as compared to the same time last year.
If you are planning to enter the housing market, either as a buyer or a seller, let’s get together to discuss what changes in mortgage interest rates and inventory could mean for you.
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