What’s really going on in the world of residential real estate?
Slowly, but surely, the real estate market is continuing to show signs of strength. Thanks to an increase in consumer confidence, home sales in January 2017 rose 3.7%, which is a 5.5% YOY increase. While this number is promising, it still falls short of projected housing market expectations. With steady employment and rising wages, consumers are dipping their toes back into the real estate pool. A strong real estate market is a good sign for all, as real estate is often a strong indicator for the health of the overall economy.
Increased Mortgage Rates – Following the surprise results of November’s elections, mortgage rates rose to 4.25%. Many believe that we haven’t seen the last of the rate hikes, which may be why many homeowners have been quick to buy over the last few months.
Rise of the Millennials – Millennials are growing up, and with that comes first homes. According to Zillow, in 2016 almost half of all homebuyers were first-time buyers and 61% of those buyers were under the age of 35. Economists point to recession recovery as the impetus behind so many Gen Y-ers settling down in their first homes.
Increasing Costs – From labor to raw materials, the cost of building a house today is not cheaper, and it will likely only get more expensive over the next four years. Labor costs are especially predicted to be impacted by Trump’s domestic policies, which may keep potential homeowners from constructing or, even, point them toward renting. Stricter immigration laws and deportation initiatives will undoubtedly increase construction costs across the county.
Suburban Draw – Urban areas, while enticing areas for young people, are not entirely affordable. Many in the real estate industry predict that millennials and gen x-ers alike will relocate to suburban areas outside of cities as the cost of rent keeps climbing.
California Costs – California makes up 15 of the 20 least affordable counties in the United States. While the rise of the cost of living may not be enough to deter younger demographics from the Golden State, it immediately could certainly play a significant impact in the long term. Cities along the West Coast have been on the rise for the past decade, thanks in large part to the tech boom, but the unmanageable cost of living may no longer be enough to draw people in and convince them to stay. While the West Coast rises in costs, cities in the Midwest are maintaining affordability, which could eventually convince business and individuals alike to relocate to the heartland.
Rental Affordability – Housing experts are projecting a rental increase rate of 1.5% in 2017, which is less than the projected income increase. This new balance system may convince individual to opt to rent over buying a home, especially if the predictions for increased construction costs and steadily rising mortgage rates come to fruition. While millennials are purchasing homes, many are still renting in urban areas, and often with roommates to manage the costs. This generation no longer feels the pressure to stop renting by a certain time, an attitude which could contribute to renting remaining popular over the next few years.
Less is More – Homeowners are no longer aspiring to live in the McMansions of the 90s and 2000s. Whether the driving influencing factor is due to the cost of upkeep of large homes or the increasing cultural shift toward minimalism, large estates have lost their luster, even among the wealthy.
It’s no surprise that the real estate market is fickle and highly influenced by a number of environmental factors. The long-term health of the real estate market is still largely indeterminable, much of it hanging in the balance of the government’s domestic policies and initiatives.