Real Estate Market Outlook
By all measures, the real estate market is booming. Fueled by historically low interest rates, people have been lining up to buy new homes. This increased demand resulted in home prices increasing about 6.7% from last year. Overall, real estate was one of the best performing sectors of the entire economy. With all of the good news it is understandable why many would be fearful that something might upset the apple cart. However, there are many good reasons why the real estate market outlook will remain positive.
The Case for Why the Real Estate Market Outlook is Promising
The unique nature of the current real estate boom means that we can probably expect it to continue into the next year. Here are some of the reasons why:
Millennials are Buying Homes
The millennial generation is just now entering into its prime home-buying years. One of the biggest reasons for this year’s real estate market rally is that millennials are buying their first homes. While much has been written about in terms of millennials having far fewer in savings than other generations, they haven’t been deterred. As first time home buyers, they qualify for programs, such as FHA loans. This allows them to make relatively small down payments depending on their credit scores.
Mortgage Rates are Still Low
One of the biggest factors behind this year’s red hot real estate market has been low interest rates. Low interest rates have pushed those that were thinking about buying a home off the fence and into the market. Many expect interest rates to remain low for a long time. This is part of the Federal Reserve’s strategy to stimulate the economy while we get through the pain caused by the pandemic.
Possible Real Estate Hiccups
For the most part, the real estate market outlook is overwhelmingly positive. However, there are some trends that are worth watching that might cause headwinds for home sales.
November Dip is Possible, but Probably Temporary
Historically, Presidential elections do have a slightly negative effect on real estate markets in the month of November, but rebound quickly. Typically, real estate markets exercise slight cautiousness in the immediate aftermath of a Presidential election. However, this cautiousness soon gives way to the fundamental drivers of real estate markets, such as interest rates. Rather than having a long term impact on home sales, it merely causes a delay. Typically, by the time January rolls around, home sales pick up right where they left off before the election. If past performance is an indication of future results, then the same will be true this year.
The Double-Edge Sword of Rising Prices
One of the biggest potential threats to the red hot real estate market is also one of the best indicators of its health. Ironically, rising home prices could put a damper on the real estate market outlook. The current market is experiencing large increases in home prices because of rising demand and a small supply. Demand is rising because interest rates remain low. However, there is not enough home inventory to meet the current demand. This is great for people selling their homes right now. It is also great for individuals who own homes, as rising prices are increasing their equity. The problem is that we may reach a point where rising home prices becomes a deterrent for potential buyers and cool off the real estate market. It is uncertain at what point this possibility becomes a reality or even if it will happen. Only time will tell.
Potential Flood of Foreclosures
While the real estate market outlook is incredibly positive, some analysts are waiting for the other shoe to drop. There is always the possibility that the market experiences a wave of foreclosures at some point in the future. Many families are behind on their mortgage payments, but have been spared foreclosure because of government programs. The CARES Act was passed by the federal government in March to stave off the worst economic problems associated with the pandemic. CARES Act protections will eventually expire unless they are extended by the federal government. If homeowners do not get extended protections, then many people might lose their homes in a spate of foreclosures. This in turn would add a lot of inventory to the housing market and counteract some of the forces that are currently driving prices higher. This could be great for buyers, but bad for sellers. Again, time will tell.
Final Thoughts
Nothing currently suggests that the real estate market will significantly change. As long as interest rates remain low, people will continue to buy homes. This continued demand will maintain home prices, which will in turn convince others to sell their homes. If you’ve been sitting on the sideline, but are thinking about buying a home, contact us now. The team at Peoples Choice Mortgage will educate you on the mortgage process and give you a complimentary qualification review.
