Historic low interest rates were obviously the main reason for major spikes in real estate activity over the last 18 months. The FED jumped in, stimulated the industry by buying the bond and forced rates downward. The problems with this can be discussed forever. Industry experts have been debating what the true impact will be. The truth is until the FED completely steps away from the game we will not understand the full impact it had and whether the recovery will live or quickly die.
My meaningless opinion from the title insurance community is that housing prices can not “truly” rise without major improvements in unemployment numbers and more importantly wage increases for those still in the work force. We have not truly had either. Wages are stagnant and unemployment is marginally better when taking into account all of those that are out of the work force due to simply losing hope…
What we have witnessed is a time frame where cost of borrowing was at a all time low and affordability was at an all time high. The result…. an economic recovery which may provide false expectations across the board. Sure companies hired and invested in technology. Of course, profits were up and stock holders have seen increases in their portfolios. But what happens now that rates are going up…. Most of the investment came from institutions rather then the public, so the average household net worth has not dramatically increased; unemployment is inevitably going to remain stagnant or head back upwards; wage increase has not occurred and affordability will come back down to reality…. Where does that leave housing? The recovery will most certainly stall and actual real estate sales will get back to some sort of normalcy. The issue is what happens with the increased supply that is being brought to the market in many of our communities? We went from finally getting rid of much of the over supply created from the recession to possibly another over supply due to low rates and a boom in consumer sentiment.
One can argue that the average household’s fiscal confidence is back and the growth spurred by the FED has continued strength which will last…. The fact is the housing market is going to slow down with the higher rates… it’s going to be interesting to see how the market pans out through this coming winter.