The USA is seeing yet another month of rising home prices in what has been a historic seller’s market. Yet the availability of homes and their prices might not actually reflect buyer sentiment, as Reuters report a 12% decline in the number of consumers citing now as a good time to buy. Given the amount of equity gathered by US homeowners, now at record levels, and with stimulus checks in hand, this may come as a surprise for some. In fact, the fundamentals of the current market point towards what may be a long-term dip.
Borrowing fundamentals
Increasing numbers of first-time buyers are looking to take advantage of low interest rates and extra money in their pocket to pick up a home. Furthermore, the modern first-time buyer is more savvy than in the past, owing to the availability of advice online and a larger period of reflection prior to buying, given low housing stocks. As a result, consumer markets are leaning away from many of the mistakes homeowners make when it comes to home finance, such as not reviewing home loans or taking out expensive products. As Bloomberg clearly outlines, mortgage rates continue to rise across the country, and this is becoming a problem for the seller’s market: the price and quality of housing has simply outstripped what buyers have available to them.
A chilled stock market
The effects that have led to lower housing stock, such as a shortage of lumber and home building personnel, has led into a stock market dip. While the Wall Street Journal rightly point out that the stock markets found a rise after a three-day losing streak in early June, observers have noted the amount of activity in tech related to this, rather than the Dow, which continues to fall. A reflection of the industrial work being done in the country and linked tightly to house building, this might finally be the cooler that the real estate market has expected.
Cool at last?
The Washington Post think these factors have come together to put a chill on the property markets. Listing are on the fall across the country, and house prices are finally starting to slow. This has a recursive impact on markets, and will lead to a further depression in the housing market (though potentially a small one: house prices have, after all, risen to a huge $380,000 average). The impact of the return of the ‘new normal’ across the world is perhaps deflating the housing bubble after months of sellers rubbing their hands at the profits. A beneficial impact on the markets it connects to, such as construction materials, may bring a little more of a sense of trust to the stock market.
Continuing benefits
Despite an inevitable cooling, market news and quotes provider Barrons have highlighted continuing benefits to be gained from the situation within the conventional stock market. A dip is met with opportunity for investors, and that can be found both in house building companies and their tertiary markets – lumber, concrete, and related materials. UK money magazine This Is Money are reporting that the fed are eyeing an interest rate hike – with that could come a correction to mortgage rates and related financial products within the house building sphere. What this may also point towards is an inflation bubble.
Onward trouble
According to MarketWatch, inflation has risen to a 13 year high. Pushing up interest rates is one way of combating this, but analysts predict that house price inflation will continue despite measures – because, simply, the demand for shelter does not recede. Fighting runaway inflation is important; as MarketWatch note, it pushes up prices for those who have least access to funds, rather than buyers further up the chain. This has the impact of cooling the entire market – home sales start to stutter and stall as the chain of buyers and sellers is paused. The answer is, of course, to build more new homes across the country, and indeed, as pressure is moved off the house building industry, more sustainable growth may be predicted in the future.
The bubble seen in the housing market was just that – a bubble. There were plenty of excited buyers with nowhere to spend their money, so house prices increased despite there being no supply to benefit this drive forward. For the time being, it may finally cool, but not before a little more upheaval when it comes to the inflation of prices.
