Market forces to consider
Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series.
Real estate values tend to cycle up or down based on supply and demand that depends on a number of factors: consumer confidence (which includes unemployment and perceived economic conditions), mortgage interest rates, availability of mortgages, demographics, pent up supply and pent up demand.
In good times, timing the market is easy because all of the factors typically point toward buying. These days, timing the market is more challenging. Let’s take a close look at some of the factors that shape the housing market:
Consumer confidence: Economic indicators appear to be inching their way toward improvement but are hardly rosy yet. More stable employment and job creation will help a lot.
Mortgage interest rates: At historic lows. When rates go up, prices tend to stabilize or fall.
Availability of mortgages: Potential buyers with good credit, reasonable short-term debt and income they can document can get mortgages for homes that appraise. The days of grossly inflated appraisals and no-document loans are gone, at least for the foreseeable future. That means that fewer people can get mortgages now than a few years ago, but housing “affordability” is at the best point in years for those who can buy now.
Demographics: Baby boomers are beginning to move on from their family homes. Their children, the echo boomers or generation Y that now make up about 1/3 of the U.S. population, are beginning to move into the housing market. There are more echo boomers than baby boomers. They’ll all need homes.
Pent up supply: New construction has been down for a few years. It’s impossible to know how many wannabe sellers are holding their homes off the market, waiting to recoup some of their value before they sell. Those sellers are aging and won’t be able to wait forever. Some lenders are currently holding foreclosed property off the market and are likely to foreclose on more homes over the next few years. They will need to resell them.
Pent up demand: Many buyers have been waiting for prices to fall. Now, with lower housing prices, lower interest rates and up to $8,000 from the government to stimulate “first time buyers” many buyers are making their move. It appears that buyers who are not stimulated by the incentive that runs through November are taking a longer-term approach to buying but are very interested in where the market appears to be going. Many of them are readers of this blog.
PERSPECTIVE:
Markets rise and fall for many services and goods. Real estate is no different.
Demographics are the predominant long-term driver of real estate values. As the population grows, more housing is needed.
A good look at the indicators shows that there are too many market factors at work to suggest that committing to a short-term home purchase makes sense. Buyers should commit to a home for the longer-term or rent. I advise a 15-20 year mortgage or 30-year mortgage with a good mortgage pre-payment plan because we don’t stay in homes as long as our parents did and equity build-up is important.
READERS:
Based on a good look at the indicators, do you think that timing the market is really possible?
Should buyers and sellers try to time the market or just move when they are ready?
