U.S Real Estate Climate: Fears and Expectations
.We may have a different perception, but for the real estate market, the 2008 crisis was not that long ago. The market has been recovering since then and according to the experts of the field, 2017 was one of the best years for the business. The question is where is it headed now, do we have to fear for another recession or are those fears exaggerated by the skeptics of the world.
Answers to that question may vary, but let’s take a closer look:
Seller’s Market vs. Buyer’s Market
Due to low real estate supply, it’s definitely a Seller’s market and researchers say the trend will probably continue. This result comes directly from the economic indicators that favor property owners over the buyers with whom they intend to work.
Spring of 2018 was a slightly better place to buy property, low mortgage interest rates, higher supply on the market and other economic factors gave an upper hand for the first time in years to buyers. However, the U.S housing supply continues to plummet and if the tendency stays, the course overall inventory could near record lows by early next year, realtor.com predicts.
Following the low supply tendency, median listing price reached its highest point in June- 316,000 USD and they predict the number will be higher by next year
Is Real Estate Market Crashing?
Different sources tell us different answers to that question, with careful consideration we will try to reach a reasonable conclusion.
The market has been recovering.There has definitely been some ups and downs. East coast sellers moving out, expecting a market crash. Sales are slowing down and Prices keep fluctuating. In half a year, the average price dropped by 11% in Seattle
Zillow predicts the next recession will begin in 2020, however the housing market crisis is unlikely to be a cause in the next down-spin. Monetary policy, however, being the likeliest cause.
Please note, most sources say real estate is safe. A lot has changed after the 2008 recession. Banks have raised lending standards and according to statistics and research, consumers stay in their means.
The most significant problem in the housing market remains a constant housing under-building coupled with accelerating housing demand.
In 2018, housing demand surpassed supply by more than 400,000 units. Pretium’s research predicts that in 2019 and 2020, the U.S. will continue to underproduce homes by approximately 200,000 units, and vacancy rates should drop by approximately 15bps per year.
Constant supply shortage keeps prices rising. Thirty-year fixed mortgage rates have risen significantly since the start of 2018, ending the year at 4.55%. Increasing rates, combined with HPA (Home Price Appreciation) above nominal income growth, have a major impact on affordability.
However, the market is set to favor rentals. Lower home affordability plus strong household formation equals increased demand for rentals. Research conducted by Pretium, predicts single family rental demand to be increased significantly and length of stay to be longer in future.
Although, positive trends- such as high demand- in housing probably won’t be affected by higher prices. This is due to a couple of factors- economic growth, low unemployment and aging of millennials. Actually, millennials might be the saving grace of the real estate market.
Climate Change and Real Estate
Does climate change affect real estate? Short answer- yes. This is an overlooked issue, but very necessary to discuss.
Climate change factors such as extreme weather, rising sea levels, soil erosion, floods and wildfires are expected to cause California real estate losses of $300 million to $3.9 billion annually. Of course, other states get affected too. Worsening climate change will have a major influence on insurance policies all over the country.
As for home valuation, it will take more time to change since there is a highly appreciated sea view involved. But rising sea levels and falling land will take a toll on coastal real estate sooner or later, Stanford Magazine claims
Climate is literally changing in the world and in real estate. As mentioned in the article there are lots of ups and downs on the real estate market. There are a lot of new-age factors to take into consideration. At the end of the day it never hurts to be careful.
Housing market most probably won’t be in the leading role of the rescission, if it even takes place and it most probably won’t be as colossal as the previous one, but if we say the housing market is in it’s prime- we would be lying
However, here is a silver lining: Become web-savvy, this could be a time for you to come out on top for those who are searching online and since during the slowdown, the first-time homebuyer market is more resilient than repeat buyers and most of them are millennials, who prefer to do everything online, adapting your services to today’s tech-savvy customers might be a selling point
Got a burning question or two? Let us know in the comments down below. For more on the Real Estate Market, read How Does the Real Estate Market Work? Or check out our cool tips How to Target Millennial Homebuyers