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U.S. Residential Real Estate Today

By Brian Kline | April 20, 2018

Eight years later, people continue to persistently talk about the Great Recession and the residential real estate melt down. Hopefully this keen hindsight will help prevent a repeat. While there is no sign of this happening again in the near future, let’s keep an eye on what is happening today. Here are some numbers and insights from a wide variety of sources. These are not listed in any particular order of significance.

  • According to Seeking Alpha, 37% of all homes sold in the U.S. last year were purchased for investment purposes.
  • Homeownership in 2016 was at the lowest level in 50 years. Renting continues to be the more frequent choice over ownership. Regardless if it is a preference or economic necessity.
  • Interest rates began inching higher in 2017 and can be expected to continue into 2019.
  • The market is behaving in a mostly normal cyclical fashion. As prices rise, sales activity slows down, prices weaken, and then sales pick back up. Rising interest rates drive higher monthly payments that will negatively influence price increases, the opposite of what inventory shortages do.
  • The shortage of inventory has become persistent with prices increasing.
    • Prices have become unaffordable to Middle America in select metro areas.
    • Prices have recovered to prerecession levels in most of the country and have only recently begun true appreciation in value.
    • The high-end market is showing signs of stagnation.
  • A Realtors consensus estimate is that the housing completions rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.
  • New construction starts increase or decrease almost on a monthly basis. No sustained trend is developing.
    • March data shows housing completions fell 5.1 percent to 1.217 million units in March, with single-family units dropping 4.7 percent.
    • A very recent survey indicates a tariff on Canadian lumber will drive up new construction material costs.
    • Applications for new permits of single-family housing decreased last month.
  • Current homeowners who locked in historically low rates in recent years may be reluctant to sell if it means taking on a higher mortgage rate on their next home. That could further diminish the inventory of homes for sale nationwide.
  • Millennials are reaching peak homebuyer age, adding to the number of would-be buyers this spring and throughout 2018.
  • While a near term recession doesn’t appear likely, home affordability is closely tied to the economy. Both for new purchases and to make existing monthly payments. A significant reduction in employment will lead to a spike in foreclosures. A lack of wage growth will keep many renters from being able to purchase.
  • There are signs that the subprime mortgage market is reemerging after disappearing following the Great Recession. The new name is the “nonprime market”. Carrington Mortgage is now offering mortgages to borrowers with "less-than-perfect credit". Demand is exceeding expectations.
    • Last summer, Fannie Mae announced it would relax its lending standards for prime loans, allowing borrowers with higher debt and lower credit scores to obtain loans.
    • Fannie Mae raised its debt-to-income (DTI) limit from 45 percent to 50 percent. The share of high DTI loans jumped from 6 percent in January 2017 to nearly 20 percent by the end of February 2018, according to a study by the Urban Institute.

For much of the country, the combination of low inventory, rising prices, and higher mortgage rates can be expected to weigh on the U.S. housing market this year. Several economists and housing experts forecast U.S. home sales will be flat or only slightly higher than in 2017.

Certainly, these aren’t the only indicators worth keeping an eye on. What other indicators do you find important? Please leave your comments.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 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. With the Pacific Ocean a couple of miles in the opposite direction.

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News
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