There are many conflicting headlines when it comes to describing today‚Äôs real estate market. Some are making comparisons to the market we experienced 10 years ago and are starting to believe that we may be doomed to repeat ourselves. Others are just plain wrong when it comes to what it takes to qualify for a mortgage.
Today, we want to try and clear the air by shedding some light on what‚Äôs causing some of these headlines, as well as what‚Äôs truly going on.
Myth #1: We Are Headed for Another Housing Bubble
Home prices have appreciated year-over-year for the last76 straight months. Many areas of the country are at or near their peak prices achieved before the last housing bubble burst. This has many worried that we are headed towards another housing bubble.
Reality:The biggest challenge facing today‚Äôs real estate market is alack of homes for sale!Demand is strong, as many renters have come off the fence and are searching for their dream homes.
Historically, a normal market requires a 6-month supply of inventory in order for prices to rise with the rate of inflation. According to theNational Association of Realtors(NAR), there is currently a 4.3-month supply of inventory.
The US housing market hasn‚Äôt had 6-months inventory since August 2012!The concept ofsupply and demand is what is driving home prices up!
Myth #2: The Rumored Recession Will Lead to Another Housing Market Crash
Economists and analysts know that the country has experienced economic growth for almost a decade. When this happens, they also know that a recession can‚Äôt be too far off. But what is a recession?
Merriam-Websterdefines a recession as‚Äúa period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two consecutive quarters.‚ÄĚ
Reality:Recession DOES NOT equal housing crisis. Many people associate these two terms with one another because the last time we had a recession it was caused by a housing crisis. According to theFederal Reserve, over the last 40 years, there have been six recessions. In each of the previous five recessions,home values appreciated.
Myth #3: There is an Affordability Crisis Looming
Rising home prices have many concerned that the average family will no longer be able to afford the most precious piece of the American Dream ‚Äď their own home.
There are many different affordability indexes supported by different organizations that all measure different data. For this reason, there is a lot of confusion about what ‚Äúaffordable‚ÄĚ actually means.
The monthly cost of a home is determined by the home‚Äôs price and the interest rate on the mortgage used to purchase it. According toFreddie Mac, interest rates haverisenfrom 3.95% in January to 4.59% just last week.
Reality:As we mentioned earlier, home prices have appreciated year-over-year for the last 76 months, largely driven by high demand and low supply.
According to a recent study byZillow, thepercentage of median incomenecessary to buy a home in today‚Äôs market (17.1%) is well below the mark reached in 1985 ‚Äď 2000 (21%), as well as the mark reached in 2006 (25.4)! Interest rates would have to increase to 6% before buying a home would be less affordable than historical norms.
The starter-home market has appreciated at higher levels (9.4%year-over-year) than any other market. One reason for this is the fact that many of the first-time buyers who have flocked to the starter-home market are being met with high competition. For some hopeful buyers, it may take more than a good offer to stand out from the crowd!
There is a lot of confusion in today‚Äôs real estate market. If your future plans include buying or selling, make sure you have a trusted advisor and market expert by your side to help guide you to the best decision for you and your family.
Source: Keeping Current Matters 7204 Glen Forest Dr. Suite 204 Richmond, Virginia 23226 United States
Author:Kenyatta Phillips Phone: 334-595-9021 Dated: August 30th 2018 Views: 361 About Kenyatta: Kenyatta is a devoted Christian, wife, and mother. She enjoys reading, cooking, baking, and crafting...
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