Did you know?
The US is the most powerful economically (in terms of GDP) nation in the whole world. Even though China gives its best to catch up, in the near future the first place seems to be predetermined.
The Real Estate Market
US Bureau of Economic Analysis data for 2015 reveals that the housing market, part of an industry called “Finance, insurance, real estate, rental, and leasing,” is the biggest one. The sector surpassed 20% of the nation’s GDP.
This is great news, especially after what happened in 2008. Back then a financial crisis spread like a plague on account of the real estate bubble which exploded. This, consequently, had dreadful repercussions on the global economy. If something hits the US, it hits the world. Hopefully, the real estate sector has been on the rise since then.
What are the trends and factors that affect this industry?
What Has Happened So Far And What Will Happen Later In 2017?
Prices Continue To Rising
For five years, prices have been growing steadily. Things look bright and it seems the lesson from 2008 is learned. Most experts predict that the trend will continue at a steady pace throughout 2017. Primarily the reasons behind this increase are low unemployment rate, high consumer confidence, and strong demand.
According to the National Association of Realtors (NAR), the increase in existing home sales is 3.8% in 2016. In addition, US Census Bureau statistics reveal that sales of new single-family houses increased by 12%.
Let’s sum up
In 2016, all 20 big cities in the US saw a steady increase in house prices. Seattle reached a 10.75% increase, Portland – 10.01%by, Denver – 8.89%, Tampa – 8.33%, Dallas -8.06%, Miami – 6.79%), Boston – 6.31%, etc.
The Rate Of Interest
For more than a decade the Fed had not increased interest rates. Last December, however, the US central bank hiked interest rates by 25 basis points to 0.5.
In March this year, they did it again. Just a few days ago, the Federal Reserve increased interest rates for the third time in a period of 7 months. Currently, rates stand at 1.25%, and policymakers have predicted that there will be one more rise by the end of this year.
Interest Rate & Mortgage
Of course, these decisions directly affect mortgage rates. Higher rates mean higher costs. Nevertheless, this is an indicator of a strong and stable economy. Besides, experts think that interest rates will not exceed 4.3% on 30-year-fixed mortgages.
Low Levels Of Unemployment
The unemployment rate in the USA has been going down since 2012, reaching a 10-year bottom at 4.3% in May. Here on the website of the Bureau of Labor Statistics, you can see a nice diagram showing how the rate has been improving.
As you can see, the unemployment rate has reached pre-crisis levels. Robust job market means more people able to buy new homes. This for sure is one of the most optimistic indicators for both the US housing market and the economy as a whole. Therefore, banks will be more willing to give mortgages to first-time buyers (see how to increase mortgage chances).
Strong Mortgage Activity
Despite the increase in interest rates, more and more people wish to buy their first home. The Mortgage Bankers Association (MBA) has recently announced May statistics that show an incredible uptrend.
According to a Builder, in May the number of applications for a new home has increased by 15 % on an annual basis. Compared to April 2017, the increase is 4%. It seems that the confidence and trust in the US economy have a positive impact regardless of the several interest rate hikes. Thinking about Mortgage? Make sure you know your credit score and more important – know how to increase your credit score.
This is always one of the driving factors when it comes to an economy in general. What will the legislation concerning the real estate market be? In April, the White House announced their proposal for a tax-cut law aiming at keeping the mortgage interest deduction and increasing the standard deduction.
However, The National Association of Realtors reacted immediately and criticized the proposal as inefficient. Some experts, though, believe that broadly speaking tax cuts mean more money for people to spend. When people have more money, they tend to spend more on real estate.
Builder Confidence Rises
Another very optimistic trend this year is builders’ positive outlook on the market and the economy in general.
Regarding new single-family homes, the National Association of Home Builders (NAHB) May statistics revealed that builder confidence reached a new high of 69 on their index. Despite a slight decline in June (67), NAHB Chairman noted that this is a sign of a sound and recovering housing market.
Summary And Conclusion
In my opinion, the real estate market in the US looks solid and stable.
The Federal Reserve has increased interest rates twice this year and intends to do it again. This means that mortgage rates will increase as well (see how interest rate changes impact your property investment). Perhaps, these decisions are an indicator that the US monetary policymakers believe in the positive outlook for the economy.
It shows signs of smoothness and stability with record-low unemployment rates. So does the real estate market prices have been slowly but gradually increasing over the last five years. What’s more, mortgage activity is also on the rise proving that higher rates do not scare buyers away.
What will Trump’s administration do concerning the housing market? We are about to see.