If you’re still skeptical about the real estate market, you should take note that almost all relevant metrics continue showing improvement. The one troubling metric lately has been rising interest rates. Rates began inching up after the Federal Reserve announced last June that it would begin easing off it’s bond buying program that has kept interest rates super low for several years.
In September, the Fed implied they will continue buying bonds for the foreseeable future because they are less sure the economic recovery is sustainable otherwise. When they do begin winding down the program, it will be done in very small increments so that the impact on the economy can be carefully monitored.
It’s a Complicated Economic World
The recent government shut down brought uncertainty to the market about what direction the economy was heading. The result was a full percentage spike in mortgage interest rates. These have now begun reversing course downward since the government went back to work and based on the Federal Reserve changed position. Mortgage interest rates are now at a four month low.
Among other promising news is that 2.5 million homes emerged from under water in the second quarter of 2013. These are now back in positive equity territory as home prices continue to appreciated in value. Investor purchases of foreclosed properties has been the primary driver of recovering prices. With available foreclosures declining significantly, investors are turning to owner occupied homes. The combination of investors and owner-occupied buyers in the traditional market assures that home prices will continue appreciating into the foreseeable future.
Home prices are expected to rise between 9% and 10% for 2013 and another 7% to 8% in 2014 according to Forbes magazine.
Supply and Demand Reaching Equilibrium
It’s never true for all markets but the majority of markets are returning to a supply-demand equilibrium. September saw a 1.68% decline in inventory of single -family homes, condos, and townhouses. After steadily growing inventory for the past six months, the slight decline indicates the market is close to equilibrium.
It has also spurred an increase in new housing construction. The National Association of Home Builders estimates between 875,000 to 900,000 total housing starts driven by the continuing improvement in single-family starts. Single-family starts dipped in July but rebounded in August and improved again in September.
Almost every important indicator is showing slight declines followed by slight increases. A solid sign that the market is operating to remain balanced.
As long as new construction does not change the supply/demand balance in favor of excess supply, appreciation should continue until most of the underwater loans are gone. At that time, the vast majority of the market will enjoy a stable and reliable appreciating residential real estate market.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.