In the U.S., home-buying season typically coincides with the arrival of spring, but several factors determine the state of the real estate market with each new year. Whether you’re looking to rent, buy, or sell a home, it’s important to look at the trends in the real estate market to know what you’re up against.
“How’s the real estate market?” This often-asked question can be answered only by looking at the multiple factors that affect it, such as the state of the economy and interest rates.
At the beginning of 2020, forecasts indicated an increased demand and limited supply in commercial and home real estate, but it was expected that low-interest rates would keep prices from significantly increasing. However, due to the spread of COVID-19, commonly called coronavirus, the U.S. economy has taken a sharp downturn and things are likely to play out differently. Let’s take a look at the current state of the real estate market.
Increased Uncertainty
History has shown that the housing market normally isn’t greatly affected by swings in the stock market, but has increased uncertainty as the outbreak spreads.
Fears of pandemic-induced recession or another housing market crash seemed to effect buyer trends in the short term.
In a bid to prevent a repeat of the housing market crash of 2008, the federal government has announced a moratorium on foreclosures and cut interest rates, so the market is likely to bounce back if the situation does not persist.
Lower Mortgage Rates
At the start of the 2019 spring homebuying season, rising interest rates caused many prospective buyers to put aside their plans for purchase, as they were unwilling to take on a financial burden they couldn’t afford. This led to a lowering of interest rates that were expected to remain low in 2020 as mortgage lenders wanted to ensure that buyers remained active.
Inventory Remains Low
Aside from interest rates, it is important to remember that the housing market is affected by numerous other factors, such as economic status, real income, and population density.
Possible Delays in New Home Construction
Despite rising home and rent prices being a clear indicator of the need for increased inventory, we may also see a delay in construction for new homes.
One reason could be that there is limited land available for development in many areas, which means investors may have to re-focus their efforts to the outer suburbs.
Additionally, expected labor shortages and regulatory constraints in many parts of the country may result in higher building costs. Developers may decide to build luxury housing, which offers the highest yield.
It is not clear how Covid-19 may affect the construction industry especially since construction materials often come from China, a country that has been affected by the pandemic.
Is the Real Estate Market Getting Better?
The question can be answered from two perspectives.
Buyers can expect a steady housing market long-term if interest rates remain low.
Sellers are also likely to benefit from the number of buyers encouraged by low-interest rates, and home prices are expected to continue to trend upward, especially in cities. However, appreciation in home value may be slow.
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