Recent global activities such as Brexit and the overall European disputes and the commencement of President Donald Trump Residency have certainly impacted the United States in its economic sectors and industries. Recent world and domestic activities continue to affect the American real estate market; luckily, the degree of this influence is not grand. Despite the volatility of economies worldwide, job and population growths continue to characterize the current performance of the economy of the United States. The American real estate market consequently is bound to witness more inventory shortage and steadily increasing prices of properties. Because American real estate is running out of inventory, residents are reaching out for other investment alternatives to claim ownership within the sector. Remodeling of existing homes instead of purchasing completely new properties, and moving out to suburbs continue to constitute some of the alternatives baby boomers and millennials seek.
Related: 6 Real Estate Market Trends of 2017
In this article, we explain the current state of the American real estate and further pinpoint any investment opportunities. If you are a potential real estate investor, we recommend that you study the housing market cogently before you proceed to your purchase. We hope this article will help you conclude on the efficacy and feasibility of new investments and further enable you to make sound investment decisions.
Property Prices Continue to Rise
In the years 2004-2007, building and construction picked up fast. However, since the recession, the number of new home builds has decreased greatly. American real estate was then entering into an inventory shortage. This shortage of inventory today is becoming a major hurdle. The short inventory of homes has consequently appreciated home values. This is also an indicator that home demand is not being met.
The high demand and low supply have consequently raised property prices to price levels that many aren’t financially able to afford. In fact, the housing market this year has shown stronger than the expected price growth. The median home price recorded in July was $258,000, according to NAR, which is about 6.2% higher than it was last year. Property prices have risen year-over-year for the past consecutive 68 months. If you are looking to purchase a home, we advise that you do it now before prices in the American real estate market rise even higher.
Property Inventory Falling
American real estate has been alarming as the country continues to suffer from major home supply shortages. Several factors have heightened this problem, and these include: high demand for properties, steadily rising property prices, and slow construction pace. Altogether, these factors have manipulated the dearth of home supply in American real estate and brought attention to its austerity. In fact, the problem of low inventory has become a major crisis, and a strong barrier for first-time homebuyers who are now less capable of saving up for a down payment.
Moreover, recent policies have been unfavorable to American real estate and, in particular, the issue of short inventory of homes. According to policy analysts, Trump administration policies are over emphasizing demand for housing and under emphasizing supply. Policy makers should direct efforts towards new construction in order to meet the increasing demand.
Seeking Alternatives Amidst Dearth
Two trends have emerged to substitute and solve the dearth of homes available, seen in the 3rd and 4th quarters of this year. The first trend is towards remodeling and rehabbing properties instead of selling and purchasing new homes. Finding a house today has constituted a big hurdle for property buyers because of the shortage of homes and rising prices, so homeowners are now seeking refurbishments and renovations instead, in order to advance their living standard. By renovating your house, you incur less costs, and this is especially good given how unaffordable houses have become.
Related: Home Renovation: A Guide for Fixer-Upper Investments
The second trend has been seen towards millennials who have risen and integrated into the American real estate market. Millennials are seeking to settle down and are thus investing in homes as means to achieve stability. More millennials are entering the housing market and have come to constitute a substantial share of the market. However, given the scarcity of home supply and rising prices, millennials are seeking other homeownership alternatives. In fact, the number of millennials moving to the suburbs has significantly increased this year. Indeed, millennials would prefer to be in area of close proximity to city centers; however, residing in these areas is now not affordable for many. Studies show the trend will continue in the upcoming year.
Mortgage rates have been witnessed to have a positive outlook. At the beginning of 2017, the average rate on a 30-year fixed mortgage was 4%; today the rate has gone down to 3.85%. It is important to note that currently investor confidence in the US government is what is keeping rates low. If investors pull their money out of the US Treasury Bonds, which serves as a benchmark for mortgage rates, mortgage interest rates will consequently increase. This is good for buyers seeking mortgage, however, counteractively, as it will encourage more buying, thus heightening the inventory crisis. If you are a millennial, we encourage that you save enough money to be able to qualify for a mortgage amidst home value appreciation.
Related: Paying Off Investment Property Mortgage Early: Pros, Cons, Tips
The positive economic environment has certainly advanced the state of American real estate. The solid job growth, economic growth, and low mortgage interest rates, particularly, continue to reflect positively on housing and mortgage markets. However, high officials should address efforts to solve the inventory crisis before property prices rise too high. These efforts, in addition, should focus on increasing construction of affordable housing, new-builds, and multifamily units. We hope you have a better idea of what American real estate beholds today. For more information about real estate investing, please visit Mashvisor.