Nicole Glazer McKee

(949) 636-3659
Email Nicole

25950 Acero St, Suite 100
Mission Viejo, CA 92691

24851 Del Prado Ave
Dana Point, CA 92629

6 Trends Fueling the Current Real Estate Market

May 16, 2016

Spring has notoriously been prime time for the real estate market, and in certain centers, it’s been a particularly heated one for a while now. With an improvement in the labor market over recent months already playing its part in driving the housing market, experts believe many other trends will add fuel to the fire.

6-trends-fueling-the-current-real-estate-market-featured

1. Mortgages Are Easier to Obtain

Right after the housing crisis over eight years ago, lenders seriously tightened the noose when it came to lending criteria. As a result, it became extremely difficult for borrowers without stellar credit to even be considered for a mortgage. While lenders implemented stringent underwriting standards in an effort to protect themselves from potentially delinquent borrowers, they also made it tough for the average homebuyer to obtain financing to secure a home purchase.

But these days, mortgage approvals are much more common. According to Ellie Mae, over three-quarters of mortgage applications were approved in March, up from two-thirds from the same time last year. With more relaxed lending requirements, borrowers will find obtaining a mortgage a lot easier today than they did years ago. And with interest rates still being as low as they are, mortgages are still relatively affordable.

2. Inventory Continues to Be Tight

Despite increasing property values across the US enticing homeowners to make a pretty penny off the sale of their homes, inventory continues to be tight. This is especially true for starter homes and new construction.

With a reduction in the number of distressed homes popping up on the market for sale, combined with fewer new homes being built, inventory will likely continue to experience a squeeze. Despite home builders erecting approximately 650,000 new single-family homes in 2015 – a high since the housing market crash – it’s still way below the average. Demand for new homes is simply not being met just yet.

3. The Hottest Housing Markets in the Country May Soon Hit a Plateau

The exponential rise in home prices, especially in centers like San Francisco and Seattle, can’t be sustained forever. At some point, something’s got to give. After an extended period of time of double-digit price growth in many markets, things appear to be nearing a plateau.

The worries of a housing bubble are not as prominent as they were months prior, as buyers of homes in these markets either purchased with solid financing or even fronted all-cash to complete their transactions. As such, a repeat of bulk foreclosures is not expected.

4. The ‘Burbs Are Becoming More Attractive

As home prices and rent rates in urban hubs skyrocketed over the recent past, an increasing number of buyers have been looking to the outskirts of the suburbs to plant their roots. According to the Bank of America Homebuyer Insights Report, over half of buyer’s in today’s market are considering buying single-family dwellings outside city centers. But these buyers are also looking at suburbs that still offer urban-type amenities, including public transit and employment opportunities.

5. Affordability Continues to be an Issue

While wages have been slightly increasing recently, they aren’t keeping up with the increase in average home prices across most parts of the US. For this reason, many Americans are continuing to find it a real challenge to be able to afford a home purchase. So far this year, average Americans spend over 30% of their income on home loan payments; that number has been steadily increasing from 26% in 2015, and 22% in 2012.

6. Rent Prices Continue to Soar

Those who are looking to get into the real estate market today might find it tough to choose between renting and buying, considering the high prices of both. While housing affordability continues to be an issue for many Americans, rent prices are following suit. Median rent prices across the country are up 2.8% from April 2016, and now sit at $1,300 for a two-bedroom apartment.

San Francisco is the most expensive city for two-bedroom rental units, with a current median price of $4,690, with New York City coming in second with a median price of $3,400 for two-bedroom units. If rental inflation doesn’t slow down soon, or if wage increases don’t pick up the pace, we could be seeing more Americans looking to buy in the near future. Despite the higher price to buy, purchasing may seem like the more affordable option compared to how much it costs to rent today.

The spike in median home prices has certainly been a strong driver of housing markets across the US lately. Despite an increase in wages over recent months, median home price increases are still winning the race. It will be interesting to see if and when prices finally reach their peak and level off, helping to make housing more affordable for the average wage earner.