With summer inching closer to an end, fall real estate market predictions are starting to swirl, and I couldn’t be more encourage by how the latter half of 2016 is shaping up. Even though the most active time of the year is drawing to an end, there is still a lot to like about the real estate market as fall approaches. Low interest rates and significant improvements in market sentiment should be able to quell any concerns over inventory levels, and even the upcoming presidential election.
It is important to note, however, that the fall real estate market typically coincides with a cool down in market activity. For what it’s worth, spring and summer have become synonymous with the most active markets year after year; a cool down heading into September is to be expected. That said, 2016 has been one of the best years for hosing we have seen in the last decade. Any temperance in the market will not halt the progress we have made up to this point, but rather conform to trends we have grown accustom to. The market is doing so well that a slight decline in activity will have little to no impact on the current recovery.
Heading into 2016, we saw a lot of lofty expectations being set for the housing market. Nevertheless, any momentum that was gained at the backend of 2015 was carried over into this year, and nonetheless built upon. Equity has returned in full-force, effectively reducing the number of underwater homes and increasing market sentiment. While inventory levels are still tight, the final months of 2016 could see the lack of housing availability ease and more people actively participate in the market.
Any fall real estate market predictions you have read up to this point are just that; predictions. If for nothing else, guessing the future of the fall real estate market is a fool’s errand. That said, it is entirely possible to identify trends and make an educated guess as to which direction things are heading. What can we learn from what has transpired up to this point and, better yet, how can we interpret it moving forward? In my opinion this year’s fall real estate market predictions are the best we have seen in quite some time.
Mortgage Rates Will Increase Slightly
It’s safe to assume that the mortgage rates we have grown accustom to seeing in the last few years contributed to a healthy recovery. If for nothing else, historically low interest rates helped to promote today’s encouraging housing activity. That said, the days of decreasing mortgage rates are officially behind us. Halfway through August, the average for a 30-year fixed-rate mortgage reached 3.56 percent. While today’s rate may not sound like much, at least from a historical perspective, they have increased more than 10 basis points since the beginning of July.
It is important to note, however, that rates are still going to be relatively low heading into the fall real estate season. Not only has the Fed neglected to increase interest rates incrementally, but the powers that be appear content holding off on raising short-term rates until more encouraging economic progress is made. So while rates have already increased from where they were at the beginning of the year, they shouldn’t go too much higher any time soon.
According to Realtor.com, “the Fed’s policy decisions don’t directly affect mortgage rates, but the mortgage market will likely see rates rise if the Fed highlights signs of improving economic growth and inflationary pressures. Likewise, any positive news out of Europe and Asia could also drive rates higher.”
One indicator, however, could have a significant impact on the state of the U.S. economy: the upcoming labor report. Whether it has a positive or negative impact on the economy remains to be seen, but the chances of it boosting the economy are legitimate, albeit a small legitimacy. It is entirely possible that August’s employment numbers give the Fed a reason to increase interest rates, as a more stable economy typically coincides with higher rates.
“The underlying reason for higher rates is a stronger economy; so the benefits of that will offset the impact of marginally higher rates,” says Jonathan Smoke, the chief economist of Realtor.com.
At the very least, a strong employment report in August could force the Fed’s hand into hinting at an impending rate increase. Even the mention of a rate increase — no matter if it comes to fruition or not — can impact housing activity. The possibility of a rate increase, whether it is substantiated or not, will force prospective buyers to reevaluate their current position. If rates, are expected to go up, they will be more inclined to buy sooner rather than later.
The Inventory Burden Will Ease
The housing market has been on a torrid pace for the better part of two years, and nearly every indicator suggests that the arrow is still pointing up; all except one that is: inventory levels. For far too long, the housing supply has been unable to keep up with demand. In fact, a distinct lack of available housing has a lot to do with the rapid appreciation rate we were witnessing today; supply and demand at its finest. At its worst point, the lack of housing has impeded the progress many had hoped for.
According to Marketwatch, inventory “was 5.8% lower than a year ago, the 14th month in a row of declines from year-earlier comparables. There were 4.7 months’ worth of homes available at the current sales pace.” As a comparison, six months of available inventory is typically considered a healthy level.
Fortunately, it would appear as if the tide has finally turned. While inventory levels are still tight, there is hope on the horizon. As a matter of fact, seller sentiment is higher than it has been in years, as home values have gotten to a point that some people can’t afford not to sell. Prices have appreciated to a point that are so attractive to homeowners that they may want to sell even though they don’t need to. In the event seller sentiment plays out the way I believe it will, more homeowners will list their homes for sale to take advantage of today’s prices. That means there will be more homes for buyers to choose from, which could also reign in today’s appreciation rates.
I want to make it abundantly clear; 2016 has been a great year for the hosing market. It’s quite possible that we will look back on 2016 as the best year for hosing in a decade. However, it is more than likely that the end of the year will witness a slightly weaker market, but it is important to note that “weak” is a relative term. While it is true we are about to enter the slower part of the year — summer and spring have become synonymous with stronger markets in general — housing market activity will be declining from an already very high point. So while yes, it might be weaker, we are still in the midst of a great year for the market as a whole. Should these fall real estate market predictions come to fruition, 2017 may have a chance to build upon the solid foundation this year established.