Happy New Year!
Interest rates are the biggest single influence on the real estate market. There are many 'barometers' for the industry, but interest rates are the one that really can make a market move or stall. The feds have been using all of their influence to keep rates artificially low. The reason is that the real estate market was very fragile from 2009-2013. But as the market heated up the interest rates should have been allowed to creep up. The feds continued exercising their pressure to keep them down. I believe the economy was dependent on strong housing.
Buyer and sellers need to pay close attention to how increasing rates will effect them. Rising rates will make a house more expensive to buy.
For sellers that means a shrinking number of buyers that can afford the house. This will hurt the middle pricing the most. Wealthy people at the very top buying seven figure properties are less impacted. Although the max mortgage interest deduction for taxes was recently reduced so that may have a bigger impact than rates in the high end.
The bottom of the market will always have the most buyers. Even as rates rise the demand for entry level housing will remain stronger. People that once qualified for a 2000 foot 10 year old house may have to settle for a 1500 foot 20 year old house if rates are 2 points higher.
The middle takes the biggest hit in a rising rate market. 120% to 200% of median suffers when rates rise too fast for wages. Locally that means homes priced from $400k to $700k.
Buyers need to understand that waiting for a "better price" in a rising rate market is often counter productive. Most analysts are suggesting a slow rise, but a quick rise will lead to falling real estate prices. The higher rate is far more likely to kill a buyer than high price. I have written on this blog about the effects of high rates against high prices. Read here: Why Interest Rate is more Important than Purchase Price.
Cash buyers win big when rates move up but loan dependent buyers have to thread the needle of value trying to get a good price without paying the bank too much. Sellers have to consider the next home they will buy when selling the current house. Are they moving up to a larger house? Downsizing? Moving up could be a problem if rates are rising as the qualifying income needs to be higher to support higher rates the new house may soften in price but the higher rate could push the payment out of reach. Downsizing is less of an issue as the seller could come in with a large down payment and a much lower principal balance.
Higher interest rates however are not all doom and gloom. Historically speaking the average rate on a mortgage over the last fifty years has been in the low to mid sixes! We have been in an extended period of sub 5%. So long has it been since rates were at 6 percent I would think millennial buyers can't remember ever seeing them that high.
When the stock market is roaring and mortgage rates are only at 4% investors that might otherwise buy mortgage backed securities may seek their fortune elsewhere. This makes underwriting tight as banks must lure investors to the mortgages through the prism of low risk. As rates flex up towards the 5-6% range the returns are better and investors get pretty excited. Guide lines can soften, making the mortgages a little easier to obtain for buyers. That helps keep the prices on existing homes moving up rather than flattening out. It's about keeping buyers in the market. This is only effective to a point. Back in the eighties when mortgage rates were in double figures the real estate market was brutal. Funny thing though, people still bought houses!
Rates ought to be around 5-6% right now, and the fed is moving away from its tinkering so we will starting creeping up towards that in 2018. We should see rates settle in at market values in that range over the next 12-18 months. Buyers shouldn't fret as that is a very "normal" range and still slightly lower than the historical average.
2018 should be a solid year for real estate. The out of control seller's market should soften into the near neutral market and that will be a welcome sight for me. I have never liked it when the market is too heavily tilted in one direction. Either a mild seller's market or a neutral market is typically best for all parties to a real estate transaction.
Musings on the state of the market with tips, information and a little fun.
Showing posts with label outlook. Show all posts
Showing posts with label outlook. Show all posts
Friday, January 5, 2018
Friday, January 15, 2016
I came across this article this morning written a month ago by a real estate economist. There is some very interesting information; take a look.
December 16th, 2015, by Jonathan Smoke, Realtor.com Economist
It’s almost the new year. Get ready to break out the Cristal: We had a great 2015—the best year for housing since 2007. And our forecast here at realtor.com® projects an even better year in 2016.
How so? Well, with economic growth chugging along, employment will continue to increase, meaning that people will have more money coming in and they’ll be able to buy their first home or upgrade to a new one.
Here’s a closer look at the trends that will have the greatest impact on the housing market in 2016.
The year ahead will see healthy growth in home sales and prices, but at a slower pace than in 2015. This slowdown is not an indication of a problem—it’s just a return to normalcy. We’ve lived through 15 years of truly abnormal trends, and after working off the devastating effects of the housing bust, we’re finally seeing signs of more normal conditions. Distress sales will no longer be playing an outsized role, new construction is returning to more traditional levels, and prices rise at more normal rates consistent with a more balanced market.
Millennials emerged as a dominant force in 2015, representing almost 2 million sales, which is more than one-third of the total. This pattern will continue in 2016 as their large numbers combined with improving personal financial conditions will enable enough buyers between ages 25 and 34 to move the market—again. The majority of those buyers will be first-timers, but that will require other generations to also play larger roles.
Two other generations will also affect the market in 2016: financially recovering Gen Xers and older boomers thinking about or entering retirement. Since most of these people are already homeowners, they’ll play a double role, boosting the market as both sellers and buyers. Gen Xers are in their prime earning years and thus able to relocate to better neighborhoods for their families. Older boomers are approaching (or already in) retirement and seeking to downsize and lock in a lower cost of living. Together, these two generations will provide much of the suburban inventory that millennials desire to start their own families.
Assuming that most of these households will both sell and buy, it is important to recognize that 2016 is shaping up to be the best year in recent memory to sell. Supply remains very tight, so inventory is moving faster. Given the forecast that price appreciation will slow in 2016 to a more normal rate of growth, delaying will not produce substantially higher values, and will also see higher mortgage rates on any new purchase.
One aspect of housing that has not recovered yet has been single-family construction. Facing higher land costs, limited labor, and worries about depth of demand in the entry-level market, builders have shifted to producing more higher-priced housing units for a reliable pool of customers. That focus caused new-home prices to rise much faster than existing-home prices. Builders were able to be profitable and grow by following this move-up and luxury strategy, but their growth potential was limited by avoiding the entry level. That should begin to change in 2016.
We are already seeing a decline in new-home prices for new contracts signed this fall. In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders. We’re looking for the strong growth in new-home sales and single-family construction as builders offer more affordable product in the year ahead. Consumers of all types should consider new homes, but availability will be highly dependent on location.
We told you mortgage rates would go up in 2015, and they did—but they also went back down. We expect similar volatility in 2016, but the move by the Federal Reserve to guide interest rates higher should result in a more reliable upward trend in mortgage rates.
Thirty-year fixed rates will likely end 2016 about 60 basis points higher than they are today. That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase. However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher. Markets with the highest prices will see that higher rates will result in fewer sales; however, across the U.S., the effect will be minimal as the move to higher rates will spur more existing homeowners to sell and buy before rates go even higher.
The housing crisis that politicians are ignoring is that the cost of rental housing has become crushing in most of the country. More than 85% of U.S. markets have rents that exceed 30% of the income of renting households. Furthermore, rents are accelerating at a more rapid pace than home prices, which are moderating. We’ve been seeing asking rents on vacant units increase at a double-digit pace in the second half of this year.
Because of this, it is more affordable to buy in more than three-quarters of the U.S. However, for the majority of renting households, buying is not a near-term option due to poor household credit scores, limited savings, and lack of documentable stable income of the kind necessary to qualify for a mortgage today.
This trend does not bode well for the health of the housing market in the future. It will only improve if we see more construction of affordable rental housing as well as more of a pathway for renters to become homeowners.
December 16th, 2015, by Jonathan Smoke, Realtor.com Economist
It’s almost the new year. Get ready to break out the Cristal: We had a great 2015—the best year for housing since 2007. And our forecast here at realtor.com® projects an even better year in 2016.
How so? Well, with economic growth chugging along, employment will continue to increase, meaning that people will have more money coming in and they’ll be able to buy their first home or upgrade to a new one.
Here’s a closer look at the trends that will have the greatest impact on the housing market in 2016.
1. We’ll return to normal (Anyone remember normal?)
2. Generational shuffle will make 2016 the best year to sell in the near future
Two other generations will also affect the market in 2016: financially recovering Gen Xers and older boomers thinking about or entering retirement. Since most of these people are already homeowners, they’ll play a double role, boosting the market as both sellers and buyers. Gen Xers are in their prime earning years and thus able to relocate to better neighborhoods for their families. Older boomers are approaching (or already in) retirement and seeking to downsize and lock in a lower cost of living. Together, these two generations will provide much of the suburban inventory that millennials desire to start their own families.
Assuming that most of these households will both sell and buy, it is important to recognize that 2016 is shaping up to be the best year in recent memory to sell. Supply remains very tight, so inventory is moving faster. Given the forecast that price appreciation will slow in 2016 to a more normal rate of growth, delaying will not produce substantially higher values, and will also see higher mortgage rates on any new purchase.
3. Builders will focus on more affordable price points
We are already seeing a decline in new-home prices for new contracts signed this fall. In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders. We’re looking for the strong growth in new-home sales and single-family construction as builders offer more affordable product in the year ahead. Consumers of all types should consider new homes, but availability will be highly dependent on location.
4. Higher mortgage rates will affect high-cost markets the most
Thirty-year fixed rates will likely end 2016 about 60 basis points higher than they are today. That level of increase is manageable, as consumers will have multiple tactics to mitigate some of that increase. However, higher rates will drive monthly payments higher, and, along with that, debt-to-income ratios will also go higher. Markets with the highest prices will see that higher rates will result in fewer sales; however, across the U.S., the effect will be minimal as the move to higher rates will spur more existing homeowners to sell and buy before rates go even higher.
5. Already unaffordable rents will go up more than home prices
Because of this, it is more affordable to buy in more than three-quarters of the U.S. However, for the majority of renting households, buying is not a near-term option due to poor household credit scores, limited savings, and lack of documentable stable income of the kind necessary to qualify for a mortgage today.
This trend does not bode well for the health of the housing market in the future. It will only improve if we see more construction of affordable rental housing as well as more of a pathway for renters to become homeowners.
Friday, January 8, 2016
2016 Real Estate Outlook
Week one is done already! Welcome to 2016 and watch out because 2017 will be beating down the door before you know it. What is the outlook for 2016? Real estate has multiple trend lines to consider. There are national trends and local trends and they can be very different at times. There are leading markets and trailing markets as well spread out over the whole of country.
California continues to be a leading trend for the western U.S. Here in the Pacific Northwest we should always keep an eye on California trends as they tend, and the operative word is "tend" to lead our market by several months up to a year or two. If California starts to slow down, the Pacific Northwest may continue robustly but will likely follow some months later.
National market conditions are a good starting point for long term analysis but short term is too local for the national trends to really matter. An exception would be a major national economic shift either positive or negative, such as the financial crisis and subsequent recession from late 2008 till late 2009.
This Case Schiller chart was part of an article by Renee Lightner, Andrew Van Dam and Nick Timiraos of the Wall Street Journal. The chart is interactive and allows for several major US Cities to be activated or deactivated, I chose to compare San Francisco and Portland. The dashed line represents the national average. This chart shows cumulative growth as a percentage not as a price value. Note that the point where San Francisco and Portland cross on the chart does not mean that home values were equal but rather that the relative value compared to the starting point in 2000 was the same. So a SF house that started at $500k in 2000 would be $825k in 2008 where the two cities cross. Likewise that same house in Portland may have been $300k in 2000 and it would be at $495k at the crossing point in 2008. The same relative cumulative increase in value. At no point in this period did actual median home values in Portland exceed those in San Francisco, not even close, really.
Here you see the typical California excess of rapid growth and hard falls and that the Golden State tends to lead our market This chart shows the San Francisco market peaking in late 2005 where as Portland peaked in the summer of 2007. The Bay Area had a rapid hard crash whereby Portland had a moderate crash and a slower decline that eventually caught up to San Francisco. There was even a little teaser growth that occurred after the 2009 bottom climbing a bit till mid 2010, and then another decline that nearly matched the 2009 bottom in 2012. San Francisco's second bottom came early in 2012 and Portland's first bottom followed a few months later. Once again a huge steep rebound has occurred in SF, where Portland has had a moderately steep increase. San Francisco is starting show a flatter curve and that may indicate a slow down in Portland within a year.
More locally and in specific, Clark County, WA, we have something a little different than our southern neighbor, the Rose City. We have a booming new housing market. In the $300-$400k price range new construction is keeping a lid on resale growth.The sub median market remains fire hot as builders are not building much in this lower price range and sellers seem to be hanging on to the properties in the sub-median range. Meanwhile in built-out Portland the resale market is much stronger. There isn't much new housing going on in Rip City.
The crazy rental market certainly is playing a role in the entry level housing market as investors are hanging on to cash cow rentals rather than taking profits on sale. This creates demand as renters want to own but owners want to hold. This is not sustainable. Right now $225k buys a very modest house but $260k buys something much more substantial in the resale market.
The bottom will have to slow down soon unless the middle and top start to grow at a similar rate, I don't see that coming. National statistics on home sales by unit volume show that we are actually pretty healthy and somewhat sustainable. But locally we are seeing some price fatigue as buyers at the entry level are once again becoming priced out. Economic faith is not strong enough for middle income buyers to gamble on the 'big house' like they did in 2004-2007. Lenders are not quite as flexible either, so the middle high end is not growing as fast as the bottom. The bottom end has a price ceiling based on the middle. All else being equal buyers, will not pay $240k for a 3 bed 1 bath home if $245k buys a 4 bed 2 bath. Here in Vancouver USA we are getting close. I just listed and sold a 3 bedroom 1 bath house recently remodeled, so it was clean, for $225k and there are nearby listings in the area for nice 4 bedroom homes with 50% more living area selling at $250k. The bottom has grown much faster than the middle and we are nearing the point at which either the bottom stops rising or the middle has to pick up momentum. I don't foresee any drastic changes for 2016. Presidential election years tend to be flat economically and housing will likely continue to mosey along at a nice clip. Lending rates may see some increases but honestly I have been predicting that for 4 years and still rates are low. What the heck is up with that? This market can easily continue to function well with a rate increase from the current 4% 30 year fixed to 5.5%. Historically anything under 6% is a GREAT rate. If rates were to hit 6% the bottom of the market would probably see a slight decline as a fair percentage of buyers would be eliminated and that would reduce the stress on the entry level. The middle and high end market would likely be fine however.
I think we will see a continuation of appreciation in the market place but at a reduced rate in the 3-6% year over year range. This is a healthy condition and allows housing to remain in reach. More than six percent increase leads to bubbles as incomes rarely rise at that kind of pace. So as the politicians tear each other apart, real estate will likely just be-bop along.
That's my take anyway, check out the Wall Street Journal article these charts came from, it is a good read.
 |
| Wall Street Journal |
National market conditions are a good starting point for long term analysis but short term is too local for the national trends to really matter. An exception would be a major national economic shift either positive or negative, such as the financial crisis and subsequent recession from late 2008 till late 2009.
This Case Schiller chart was part of an article by Renee Lightner, Andrew Van Dam and Nick Timiraos of the Wall Street Journal. The chart is interactive and allows for several major US Cities to be activated or deactivated, I chose to compare San Francisco and Portland. The dashed line represents the national average. This chart shows cumulative growth as a percentage not as a price value. Note that the point where San Francisco and Portland cross on the chart does not mean that home values were equal but rather that the relative value compared to the starting point in 2000 was the same. So a SF house that started at $500k in 2000 would be $825k in 2008 where the two cities cross. Likewise that same house in Portland may have been $300k in 2000 and it would be at $495k at the crossing point in 2008. The same relative cumulative increase in value. At no point in this period did actual median home values in Portland exceed those in San Francisco, not even close, really.
Here you see the typical California excess of rapid growth and hard falls and that the Golden State tends to lead our market This chart shows the San Francisco market peaking in late 2005 where as Portland peaked in the summer of 2007. The Bay Area had a rapid hard crash whereby Portland had a moderate crash and a slower decline that eventually caught up to San Francisco. There was even a little teaser growth that occurred after the 2009 bottom climbing a bit till mid 2010, and then another decline that nearly matched the 2009 bottom in 2012. San Francisco's second bottom came early in 2012 and Portland's first bottom followed a few months later. Once again a huge steep rebound has occurred in SF, where Portland has had a moderately steep increase. San Francisco is starting show a flatter curve and that may indicate a slow down in Portland within a year.
 |
| Wall Street Journal |
The crazy rental market certainly is playing a role in the entry level housing market as investors are hanging on to cash cow rentals rather than taking profits on sale. This creates demand as renters want to own but owners want to hold. This is not sustainable. Right now $225k buys a very modest house but $260k buys something much more substantial in the resale market.
The bottom will have to slow down soon unless the middle and top start to grow at a similar rate, I don't see that coming. National statistics on home sales by unit volume show that we are actually pretty healthy and somewhat sustainable. But locally we are seeing some price fatigue as buyers at the entry level are once again becoming priced out. Economic faith is not strong enough for middle income buyers to gamble on the 'big house' like they did in 2004-2007. Lenders are not quite as flexible either, so the middle high end is not growing as fast as the bottom. The bottom end has a price ceiling based on the middle. All else being equal buyers, will not pay $240k for a 3 bed 1 bath home if $245k buys a 4 bed 2 bath. Here in Vancouver USA we are getting close. I just listed and sold a 3 bedroom 1 bath house recently remodeled, so it was clean, for $225k and there are nearby listings in the area for nice 4 bedroom homes with 50% more living area selling at $250k. The bottom has grown much faster than the middle and we are nearing the point at which either the bottom stops rising or the middle has to pick up momentum. I don't foresee any drastic changes for 2016. Presidential election years tend to be flat economically and housing will likely continue to mosey along at a nice clip. Lending rates may see some increases but honestly I have been predicting that for 4 years and still rates are low. What the heck is up with that? This market can easily continue to function well with a rate increase from the current 4% 30 year fixed to 5.5%. Historically anything under 6% is a GREAT rate. If rates were to hit 6% the bottom of the market would probably see a slight decline as a fair percentage of buyers would be eliminated and that would reduce the stress on the entry level. The middle and high end market would likely be fine however.
I think we will see a continuation of appreciation in the market place but at a reduced rate in the 3-6% year over year range. This is a healthy condition and allows housing to remain in reach. More than six percent increase leads to bubbles as incomes rarely rise at that kind of pace. So as the politicians tear each other apart, real estate will likely just be-bop along.
That's my take anyway, check out the Wall Street Journal article these charts came from, it is a good read.
Friday, December 27, 2013
2014 Housing Outlook
Another year is perilously close to its end. The older you get, the faster they fly by. It's a cruel irony. When you are 7 years old it seems like an eternity from Thanksgiving to Christmas. Children can't wait, it takes soooooo long to arrive. Now it's like don't blink, Christmas is here; again. Slow down already!
2013 is essentially in the books. It was a strong year for real estate in our local market and in many markets across the fruited plain. The sales volume is up significantly over 2012 and the local median price is up nearly 14%. Final numbers will arrive from the MLS in the middle of January and I will be certain to post them when they arrive.
So in regards to the upcoming year; what might we expect? As much as I hate to try my hand as Nostradamus, I will endeavor to give an idea of where I think current trends in the real estate marketplace will take us in the new year.
There are many variables that effect the real estate market. Residential real estate or the "housing" market is affected mostly by the general economy and employment, as well as mortgage interest rates and the availability of lendable assets. There are dozens of other market indicators but those are the two big ones.
The economy and jobs market seems to be flat right now. We have a very soft economic growth and questionable job growth. This "soft" economy could be an inhibitor in 2014. 2013 already showed a market shift locally from the bottom/entry level to the lower to middle move up market. Pricing has been the biggest driver in the move up market as we hit bottom on pricing somewhere in 2011 and then saw the movement up as demand increased. In general I am quite bearish on the economy. I think we will continue to see a slow growth rate and that could pose problems for the housing market locally and in many of America's more expensive markets.
The real driver behind the robust numbers in 2013 has been interest rates. I believe that has been the largest contributor to this latest round of upward pricing over the last two years. Rates have been below 5% for quite a while and through the first half of 2013 they hit rock bottom as 30 year fixed rates were in the mid 3% range. The Fed has been backing these low mortgage rates and has shown every indication of slowly moving away from that position. So far I think the Fed has done a pretty good job of helping the housing market by keeping loan rates affordable. I feel that they will need to slow it down due mostly to legitimate budget concerns. As they back off, rates should creep up. As long as they stay below 6% the real estate market should remain healthy and strong. But the higher they go the fewer people qualify for loans. This could lead to more relaxed appreciation in 2014.
Looking at the data; my biggest concern is the middle section of the market. Many homeowners have been sitting in homes that are "under water". That is they owe more than the house is worth. This latest uptick in pricing is starting to free many of these people to sell as their home value climbs up above the debt they owe. I would like to see that upward trend continue. Although I don't expect to see 14% appreciation in the middle this year, I certainly am hoping to see 6-7%. This would help many people sell their middle market homes in the $250k to $300k range and either downsize or upgrade depending on where they are in their lives.
The entry level market right now is poised to continue upward pricing trends because there are two demand pressures on it. First is the traditional new family and first time home buyers looking to take advantage of favorable pricing and interest rates. Secondly is the retiring Baby Boomers looking to bail out of the big house they raised the kids in and move into to something smaller and more manageable. The Boomer generation is large enough that it is making a significant impact in pricing pressure in what is traditionally an entry level housing market.
I am seeing an interesting development as a result of these issues. There is a huge difference between 225k and 250k in terms of what one can buy. Anything under $225,000 is seeing high demand and strong appreciation. Conditions quickly begin to relax as the price moves up above $225k. We are seeing those garden variety three bedroom two bath homes nudging up against that $225,000 barrier but at a cool quarter million it's a spacious 2200 square foot four bedroom home.
That is really where the general economic conditions start to play a factor. With interest rates as low as they are, two $10-12 per hour workers can afford an entry level house in the $175-195k range. As we move up in price better jobs are required and that is what seems to be in short supply. If this economic trend continues and we see an increase in interest rates that will lead to a middle market pricing plateau. If the middle stagnates then the bottom will also feel negative pressure. This is why I feel like we will have less appreciation next year than in 2013.
Overall my outlook for 2014 is very sunny. Maybe not quite as sunny as 2013 in terms of activity and sales volume, but I do believe the middle market will perk up at least a little bit, this spring. As much as people love to see a roaring real estate market; it really is better to be the tortoise and not the hare. A nice and steady continuously northward march is healthy and secure. I think that is the trend for 2014.
So there it is; I am dangling out on the end of the wobbly limb of prognostication. In a nutshell, I am cautiously optimistic. There are too many variables to the housing market to really know with any certainty what will happen. All I can do is look at the data, make a few presumptions based on experience and hope for the best.
I wish you all a very happy new year!
2013 is essentially in the books. It was a strong year for real estate in our local market and in many markets across the fruited plain. The sales volume is up significantly over 2012 and the local median price is up nearly 14%. Final numbers will arrive from the MLS in the middle of January and I will be certain to post them when they arrive.
There are many variables that effect the real estate market. Residential real estate or the "housing" market is affected mostly by the general economy and employment, as well as mortgage interest rates and the availability of lendable assets. There are dozens of other market indicators but those are the two big ones.
The economy and jobs market seems to be flat right now. We have a very soft economic growth and questionable job growth. This "soft" economy could be an inhibitor in 2014. 2013 already showed a market shift locally from the bottom/entry level to the lower to middle move up market. Pricing has been the biggest driver in the move up market as we hit bottom on pricing somewhere in 2011 and then saw the movement up as demand increased. In general I am quite bearish on the economy. I think we will continue to see a slow growth rate and that could pose problems for the housing market locally and in many of America's more expensive markets.
The real driver behind the robust numbers in 2013 has been interest rates. I believe that has been the largest contributor to this latest round of upward pricing over the last two years. Rates have been below 5% for quite a while and through the first half of 2013 they hit rock bottom as 30 year fixed rates were in the mid 3% range. The Fed has been backing these low mortgage rates and has shown every indication of slowly moving away from that position. So far I think the Fed has done a pretty good job of helping the housing market by keeping loan rates affordable. I feel that they will need to slow it down due mostly to legitimate budget concerns. As they back off, rates should creep up. As long as they stay below 6% the real estate market should remain healthy and strong. But the higher they go the fewer people qualify for loans. This could lead to more relaxed appreciation in 2014.
Looking at the data; my biggest concern is the middle section of the market. Many homeowners have been sitting in homes that are "under water". That is they owe more than the house is worth. This latest uptick in pricing is starting to free many of these people to sell as their home value climbs up above the debt they owe. I would like to see that upward trend continue. Although I don't expect to see 14% appreciation in the middle this year, I certainly am hoping to see 6-7%. This would help many people sell their middle market homes in the $250k to $300k range and either downsize or upgrade depending on where they are in their lives.
The entry level market right now is poised to continue upward pricing trends because there are two demand pressures on it. First is the traditional new family and first time home buyers looking to take advantage of favorable pricing and interest rates. Secondly is the retiring Baby Boomers looking to bail out of the big house they raised the kids in and move into to something smaller and more manageable. The Boomer generation is large enough that it is making a significant impact in pricing pressure in what is traditionally an entry level housing market.
I am seeing an interesting development as a result of these issues. There is a huge difference between 225k and 250k in terms of what one can buy. Anything under $225,000 is seeing high demand and strong appreciation. Conditions quickly begin to relax as the price moves up above $225k. We are seeing those garden variety three bedroom two bath homes nudging up against that $225,000 barrier but at a cool quarter million it's a spacious 2200 square foot four bedroom home.
That is really where the general economic conditions start to play a factor. With interest rates as low as they are, two $10-12 per hour workers can afford an entry level house in the $175-195k range. As we move up in price better jobs are required and that is what seems to be in short supply. If this economic trend continues and we see an increase in interest rates that will lead to a middle market pricing plateau. If the middle stagnates then the bottom will also feel negative pressure. This is why I feel like we will have less appreciation next year than in 2013.
Overall my outlook for 2014 is very sunny. Maybe not quite as sunny as 2013 in terms of activity and sales volume, but I do believe the middle market will perk up at least a little bit, this spring. As much as people love to see a roaring real estate market; it really is better to be the tortoise and not the hare. A nice and steady continuously northward march is healthy and secure. I think that is the trend for 2014.
So there it is; I am dangling out on the end of the wobbly limb of prognostication. In a nutshell, I am cautiously optimistic. There are too many variables to the housing market to really know with any certainty what will happen. All I can do is look at the data, make a few presumptions based on experience and hope for the best.
I wish you all a very happy new year!
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