Guest Post: Bob Chapman, VP of Business Development
Market Trends: When Economics Intersect with Politics?
How will these upcoming events effect the trends in the housing market? Just a few of the perceived changes in the economic landscape, that may effect the fundamentals that drive the real estate market, will be the rise in interest rates and the possibility of a growing economy. We have already seen a rise in mortgage rates, which may end up in the 4% to 4.5% range in the near future. We do know that the new administration in Washington will be focused on the prospects for a growing economy.
Since 2014 we have now seen a moderation in home price increases to a range of 4% to 6% for three years now. These ranges are based on the Median Price indexes, which also reflects the mix of sales in a particular market. That particular market could be as broad as a region (Southern California), or a particular County, and/or a particular City, or even a neighborhood. This consistent range of moderation, following the flurry that started as prices jumped off of the bottom of the market in late 2012, may have set the tone for a healthy trend as the debates move forward.
The new headlines will support the confidence that the 2016 Countywide median home prices are continuing to rise in Southern California, when compared to the median prices in 2015.
Median Prices: October 2016 vs October 2015
Orange County
Median Price: + 9.0 %
Sales Volume: + 9.7%
Los Angeles
Median Price: + 7.4 %
Sales Volume: — 6.3 %
San Diego
Median Price: + 11.1 %
Sales Volume: + 7.2 %
This data reflects a wide variety of property types, geographic areas, demographics, profiles of Buyers, profiles of Sellers, but certainly defines a trend that has become a benchmark for data analysis and opinions of pricing trends for the last few years. This has become the public’s window to the market conditions. As agents, our windows to the market conditions can become substantially more concentrated and detailed to interpret the local, or hyper-local conditions for our current clients, and our future clients.
Remember in late 2012 when Buyers became excited about home prices beginning to rise. What? Why would that excite them? It gave them the confidence that values were no longer in decline. It created more certainty for them as Buyers to understand the market conditions. Fast forward to today when Buyers are beginning to become more cautious about pricing, but have also been uncertain about the direction and timing of interest rates? Well, the terms like “on the fence”, may now become “jumping off the fence”, before the rates rise any further. Inventory is still relatively low (especially this time of year). The intersection of the Economics and Politics will not just wait for the traditional Spring buying season to begin. It is happening now. The news is full of Dodd Frank and possible modifications to that legislation. The Banking industry seems to be responding with a positive tone for potential increases in lending to the business community, aiming towards growing the economy. Consumer confidence is continuing to grow. There is a buzz out there. Of course Politics will enter these discussions to determine the degree of change.
One of the outcomes from the rise in interest rates for mortgages may be a new ceiling on purchasing power for Buyers that will be securing a loan. In the lower end and planned community markets, this may be a critical point of timing for those Buyers. In the higher end of the markets, affordability and self-imposed affordability will still play a part, but possibly to a lesser degree. However, all markets will stand up and take notice to this economic environment that will be in the news for a while. The good news is that we are coming into this new environment with a positive approach to a healthy real estate market, though still price sensitive.
If a Seller has been asking you, “should I sell now, or will a higher rate of appreciation be just around the corner”, that answer may depend on their plans after the sale and move. But waiting may not produce a significant difference when considering the carrying cost of owning the home for that extended period of time? When a Buyer sees the rise in interest rates on the horizon (which has been there for two or three years), now is the time if they have been waiting. These two “nows” will make the market that we are quickly moving into. Probably not a flurry of Buyers, or a flurry of Sellers, but a consistent flow of activity from both. This should be a time when it will be attractive for a Seller to sell and a Buyer to Buy. It feels good. But all profiles will want to know how they fit into their local market, or hyper-local market, before gaining the confidence to make a well-informed decision.
The psychology of the Economic Conditions intersecting with Political Change will produce a variety of opinions. But, the number of New Homes is on the rise, the rise in interest rates has been a long time coming (but should be modest and stable over time), the inventory of resale homes will vary from price point to price point, Economic Growth will be a Political objective, Buyer confidence should continue to be healthy (but cautious), Seller’s pricing needs to be realistic (as they need to compete with other Sellers in their comparable markets), the pricing Trends have moderated and remained fairly stable, and the headlines remain positive. All of these fundamental should continue to point to a consistent and predictable market moving through the winter months.
One more thing to consider. How to manage a transaction with Millennial Buyers and Baby Boomer Sellers? Or manage the process leading up to the transaction, or negotiating the transaction, or defining their motivations? Generally speaking Millennial Buyers will be more tuned into the mortgage payment amount, and Boomers will be more focused on the cash. The headline news will capture the attention of both. A growing economy should attract more Millennial Buyers, and the financial market fundamentals may be more attractive for Boomers to consider a move.
Change will occur as Economics intersect with Politics, and the real estate market will march on. The market will be what the market will be, we are the very best to interpret those slices of time, and the consumer is more curious than ever.
The conversation surrounding real estate is still top of mind. Motivation, Information, and Communication are still the underpinnings to this heightened degree of interest in that conversation.
Good luck out there! The Holiday Season is upon us. Have a wonderful time!
Bob Chapman
