Low inventory, increased average prices, and low interest rates created the dynamics for a seller’s market with high market demand from 2020 up to early 2022. Now interest rates are rising and the price appreciation over the last two years cannot sustain. With slightly more inventory on the market (still less than 6 months inventory of a neutral market), experts expect prices to continue increasing at a more “regular” rate.
The Real Estate Market
The real estate market depends on many factors that affect supply & demand. The high-level factors are mortgage rates, the economy, demographics, and government policies.
Mortgage Rates
The Primary Market Survey (PMMS), shows the 30-year fixed-rate mortgage (FRM) average and dates back to 1971. Lower rates mean more people can afford buying a new home due to the lower cost of getting a mortgage. In turn, increased demand can drive up the prices.
General State of the Economy
Real estate prices often follow the economic cycles. The indicators for how the economy is measured: GDP, employment, manufacturing activity, and prices of goods. The cyclicality of the economy has varying effects on different types of real estate, i.e. luxury market, hotels, commercial will react differently than residential real estate.
“Many still bear scars from the Great Recession and may expect the housing market to follow a similar trajectory in response to the coronavirus outbreak. But, there are distinct differences that indicate the housing market may follow a much different path. While housing led the recession in 2008-2009, this time it may be poised to bring us out of it.” Mark Fleming, Chief Economist at First American
High employment rates mean more people can afford their mortgage payments or can obtain a mortgage. This indicates the stability and strength of the market. On the contrary, high unemployment rates means an increase in potential foreclosures and less are able to obtain a mortgage – a less stable market.
Demographics
The composition of the population, i.e. age, race, gender, income, migration patterns and population growth rates, has an affect on pricing and the type of properties in demand. Major shifts in demographics can have an impact on real estate trends for decades. The retirement of baby boomers impacted the real estate market since 2010 when boomers started retiring and shifting demand towards vacation areas and smaller/downsized homes.
Government Policies
Property demand and prices are also impacted by tax credits, deductions, and subsidies which the government can use to temporarily boost demand for real estate. The current government incentives can determine changes in supply and demand. It is important to stay aware and up-to-date on current incentives to identify the resultant temporary shifts in supply and demand and not falsely identify those as ongoing trends.
Useful resources:
Primary Market Survey (PMMS) of rates http://www.freddiemac.com/pmms/
The Fannie Mae Home Purchase Sentiment Index® (HPSI) https://www.fanniemae.com/research-and-insights/surveys/national-housing-survey
National Association of Realtors (NAR) https://www.nar.realtor/
US Burea of Labor Statistics – Georgia https://www.bls.gov/eag/eag.ga.htm