Housing inventory tends to shrink during winter as sellers wait until spring to list their houses and buyers disappear in the fall and wait until mid January to start their home search. Sellers tend to re-enter the market as winter fades away. That has not been the case so far. Buyers are out in full force, but sellers are nowhere to be found. This has exacerbated the shortage of listings and fueled a feeding frenzy for those listings that are on the market in the 100k - 200k price range. Those houses commonly sell within days, and in some cases, hours. The 300k - 500k market is evenly balanced and possibly tilted a little towards the buy side as you move towards the upper end of the range. The 500k+ range is solidly a buyers market. There is a glut of those houses. They have shown little appreciation over the last few years and in some cases they have depreciated.
Interest rates are creeping up as the Federal Reserve has begun a concerted effort to raise interest rates 25 basis points at a time. Rates are still very low by historical standards, but any increase in interest rates raises the cost of owning a home and that puts pressure on pricing.
Due to the low inventory levels in the entry level properties and the huge demand, we have seen prices rise nicely since the 2012 bottom. I suspect that is going to moderate this year. The demand will remain high, but it will be hard for pricing to rise much. There are signs that we may be approaching a top in the market. Here is why:
- High levels of speculation by buyers and sellers. High levels of speculation usually occur at market turning points.
- Rents are not rising as fast as housing prices are, making it hard for investors to justify buying at current pricing levels.
- Credit problems that had kept renters renting are disappearing. This increases the number of home buyers, but puts pressure on investors.
- Investors control a large percentage of listings in the 100k - 200k range. The high relative prices and weakening rental market could encourage them to sell, thus increasing inventories.
- Any meaningful reduction in demand could quickly turn the under supply into an over supply and cause prices to decline. This is what caused the last real estate recession.
The improvement in the economy over the last few years has
brought back that old euphoria that pushed housing prices to unsustainable levels twelve years ago. The buyers most adversely affected by the recession seem to have lost their fear of housing and are aggressively buying.
But, as discussed above, this phenomena is not likely to continue much
longer as the market matures. There is no reason to believe that the demand
will be satisfied this year or possibly the next, but it will come to an
end. It is not healthy for markets to be out of balance and they always move
to their equilibrium point.
are thinking of selling, you may want to put your house on the market
sooner rather than later.
A very important
factor in pricing is property condition. The more
attractive a property looks, the more it will sell for. While it is
understandable that sellers hesitate to put money into a property that
they are going to sell, just imagine how the buyer feels about having
to take money out of pocket (assuming they have it) and put it into
their new house. If they have to spend money, they will discount the
house accordingly. In most cases buyers greatly overestimate the cost
of the repair. Our Selling Tips page in the Sellers section of the site
has great tips for improving the appearance of your house without
spending a lot of money.
Housing remains a
good value and interest rates are very low from a historical
perspective. The upper end houses reflect very good values relative to
replacement cost. Eventually, as the economy improves, they can be expected to rise with inflation,
as housing has throughout most of history. Rates are
low, but rising. Pricing on entry level housing is somewhat extended, but still
a better value than renting. Low mortgage rates help keep payments low. As rates
rise, buyers will have to settle for less house to stay within their budgets.
Rates will probably never be this low again. Waiting could be expensive.
To read a discussion on the 2005 - 2010 housing decline please click here.
March 18, 2017
experts in Omaha, Nebraska & Council Bluffs, Iowa
Serving Bellevue, Bennington, Carter Lake, Council Bluffs, Elkhorn, Gretna, La Vista, Omaha, Papillion, Ralston and surrounding communities.