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Housing is one of the biggest contributors to gross domestic product (GDP) in the U.S. Being that GDP is considered the preeminent measure of economic health in a country by most analysts, it’s not unfair to say that as the housing market goes, so goes the economy.

On a practical level, if you’re looking to buy a home you’ll want to know what the market is like to have an idea of what you can expect. One thing you have in your favor as a buyer is the fact that mortgage rates are currently near historical lows. However, if you’re looking to sell your home, you might be excited by the fact that inventory is generally pretty low. This is one factor which has helped prices rise over the last several years.

While we’re currently in what most experts consider to be a market favoring sellers, things in housing (and in the economy as a whole) tend to be cyclical. You need to look no further than at recent history. Multiple factors contributed to a downturn in home prices and the economy a little over a decade ago, but both the economy and prices have since recovered. When looking at the low mortgage rates of today, it may seem hard to believe that the rate for a 30-year fixed mortgage was above 18.5% in early October 1981, but it happened. While that probably won’t happen again, mortgage rates do go up.

Whatever side of the housing market you happen to be on the moment, it can be helpful to have an idea of where things currently stand. In addition, though no one has a crystal ball, we’ll take a look at some indicators for the future of the housing market.

Key Housing Market Indicators: What To Look For

When looking at the health of the housing market, it’s very important to note that there are a number of factors which may indicate the overall performance as well as short and long-term health of the sector. There’s no single metric that’ll serve as the bellwether for the direction of the market, but by taking a look at a few key metrics you can get a general idea of the direction things might be headed in. The following represents a few of the indicators that economists tend to look at when evaluating where things are headed.

Median Home Price

The first broad indicator of market performance in addition to sentiment is the House Price Index (HPI) put out by the Federal Housing Finance Agency (FHFA). According to the FHFA, the HPI “provides housing economists with an improved analytical tool that is useful for estimating changes in the rates of mortgage defaults, prepayments and housing affordability in specific geographic areas.”

In putting together the index, the FHFA looks at home price data for mortgages secured by the government-sponsored entities Fannie Mae and Freddie Mac. Regional data is reported as well as pricing at both the state and metropolitan levels.

Heat map titled, Median Home Price In Your State

There are other indexes including the S&P CoreLogic Case-Shiller House Price Index which gives them monthly overview of prices in major housing markets. This provides a different data set to give you an idea of movements in the market for residential real estate.

It’s worth noting that it doesn’t matter what price the seller sets the home at if buyers can’t reasonably expect to obtain a mortgage at that price. If for any reason the bank ended up having to take the property back and sell it, they’d be trying to recoup as much of the loan as possible. Therefore, they won’t loan you more than what a trained appraiser thinks the property is worth. The appraiser makes their evaluation after looking at recent sales of comparable homes in your area.

Quicken Loans publishes monthly indexes which look at both home values and the extent to which those values differ from homeowner expectations of value. Taken for major markets, this survey may prove to be a very useful indicator of the latest movements in the markets. This is especially so since homeowners are often slightly behind the trends when it comes to setting prices.

Number Of Homes On The Market

Another key statistic to pay attention to is the number of homes on the market in your area. In addition to mortgage rates, the number of homes in the area is one of the bigger factors that affect the price of a home. It all goes back to the classic concept of supply and demand from Econ 101.

If demand is high and housing inventory is decreasing, prices will tend to be higher because sellers have possession of a scarce commodity. If there’s a lot of inventory on the market, sellers may have to lower their prices to remain competitive because there are more options available to potential buyers.

One of the key metrics that economists look at when evaluating supply in the housing market is actually a measurement in months. The metric takes a look at how many months it would take to sell out of the current supply of homes on the market if sales continued at their current pace. The supply of existing homes on the market stood at 4.3 months in July 2019. Looking at new construction, the supply of new homes for sale was enough for 3.4 months.

Both of these metrics point firmly to a seller’s market. For context, a market is considered in balance between buyers and sellers when there’s 6 months’ worth of inventory available.

How Long Homes Stay On The Market Before Selling

A third statistic to take a look at is how long the houses in your area remain on the market before being sold. In general, the longer houses stay on the market, the more buyers may have an advantage because it indicates the house may be overpriced if there hasn’t been an accepted offer. On the other hand, if houses are being taken off the market within days of going on it, it could indicate a more competitive housing market where the seller may be receiving multiple offers and can be pickier. This kind of market keeps buyers on their toes.

When you evaluate this, the best possible data you can get is the time between when the house initially goes on the market and when an offer has been accepted. While it’s true that the house hasn’t been officially sold at that point, this time frame is what matters because it’s common practice for the home to be taken off the market while appraisals, inspections and final mortgage underwriting are performed. In the event that the deal were to fall through, the home would be put back on the market and the process would start over.

In some cases, it’s not possible to get this data easily from local REALTOR® associations. When this happens, you may be able to get data from colleges and universities that stood in the market or real estate websites. In other instances, the databases are measuring the time it takes to close so the number may look artificially longer. In the case of data gathered from websites, they may be simply tracking the number of days the home was listed on the site. This isn’t perfect because people often don’t take the home off the site for a while after the sale.


Heat map titled, How Long Do Houses Stay On The Market?

Home Purchase Sentiment

The mortgage investor Fannie Mae maintains a Home Purchase Sentiment Index® (HPSI) that looks at how Americans perceive the housing market, including the direction they think mortgage rates will be going and whether they think it’s a good time to sell, among other data.

While consumers aren’t trained economists, perception is nine-tenths of reality, as the saying goes. If consumers think something is or isn’t going to happen, they’ll adjust their behavior accordingly. Eventually you might end up with a self-fulfilling prophecy on the basis of these expectations alone. For this reason, economists look closely at a consumer confidence metric where one of the questions (about your plans to buy a home in next 6 months) is an important signaling metric for the housing market.

Housing Market Index

It’s worth noting briefly that the power of perception isn’t only seen with consumers, but also the key producers of new items in this market: home builders. The National Association of Home Builders conducts a monthly survey of its members.

Home builders in the nation’s four major geographic regions are asked to rate how they feel about current sales levels as well as where they see things going in the next 6 months. They also give a rating of the amount of foot traffic walking through their new homes. If either of these numbers is up or down, it can have a significant impact on the number of permits that are pulled for the construction of new homes as well as how many projects get started.

Your Housing Market: Hot Or Not?

An important adage that’s constantly referenced in real estate is the idea that it’s all about location, location, location. It’s cliché at this plant, but it’s absolutely true. No matter what the national numbers say, those mean nothing if they don’t match up with your experience in your local market. What follows is a list of the places where people are buying and selling homes the most, courtesy of the National Association of REALTORS®. That said, it’s important to always keep an eye on the market that’s in front of your nose.

You can find more data on housing statistics in your area here.

Metropolitan Areas With The Highest Concentration Of Buyers

The following markets have the highest concentration of buyers:

  1. Colorado Springs, Colorado (11.1%)
  2. Las Vegas-Henderson-Paradise, Nevada (10.8%)
  3. Cape Coral-Fort Myers, Florida (10.6%)
  4. Phoenix-Mesa-Scottsdale, Arizona (10.0%)
  5. Provo-Orem, Utah (9.8%)
  6. Tucson, Arizona (9.3%)
  7. Boise City, Idaho (9.2%)
  8. Tampa-St. Petersburg-Clearwater, Florida (9.2%)
  9. Ogden-Clearfield, Utah (9.0%)
  10. Orlando-Kissimmee-Sanford, Florida (8.9%)

Metropolitan Areas With The Highest Concentration Of Sellers

On the sales side, here’s how things shake out:

  1. Las Vegas-Henderson-Paradise, Nevada (21.1%)
  2. Austin-Round Rock, Texas (19.6%)
  3. Phoenix-Mesa-Scottsdale, Arizona (19.4%)
  4. McAllen-Edinburg-Mission, Texas (19.3%)
  5. Cape Coral-Fort Myers, Florida (18.9%)
  6. Riverside-San Bernardino-Ontario, California (18.8%)
  7. Des Moines-West Des Moines, Iowa (18.8%)
  8. Tulsa, Oklahoma (18.5%)
  9. Houston-The Woodlands-Sugar Land, Texas (18.4%)
  10. Durham-Chapel Hill, North Carolina (18.4%)

5 Housing Market Predictions

Now that we’ve looked at where the housing market is at, where is it going? While no one has the ability to see into the future without a time machine, it may be possible to try to divine some things about the future from existing data and what’s been said about monetary policy.

Mortgage Rates Should Remain Relatively Low

Economic uncertainty tends to favor low mortgage rates. The reasoning for this gets a bit complicated, but you can check out the nitty-gritty if you want. I’ll give you the short version here.

If it looks like things might be going poorly or are even uncertain, investors pull their money out of stocks in favor of bonds, preferring a smaller guaranteed return instead of the potential for bigger gains (or equally big losses) in the stock market. There are many events going on around the world right now that have investors more than a little worried. Among other things, there’s the trade war with China that continues to flare up. It’s also been more than 3 years and there’s no consensus agreement on Britain’s orderly exit from the European Union.

This, combined with the fact that the Federal Reserve has lowered short-term interest rates in an attempt to maintain the economic momentum and blunt the impact of global risks, should keep mortgage rates low for a while.

But don’t take my word for it. The mortgage investor Freddie Mac has come to the same conclusion.

Sellers May Expect Their Home To Spend More Time On The Market

One of the effects of low mortgage rates may be that sellers can expect their existing homes to stay on the market a bit longer. This may seem a bit counterintuitive until you realize that urgency drives sales.

According to an analysis from Forbes, people just don’t believe that they’ll be missing out on an opportunity by waiting at the moment. The number of properties that are attracting a bidding war is down dramatically, even in markets that have tended to run hot like San Francisco.

Home Prices Will Continue To Go Up, But More Slowly

Home prices over the last several years have gone up at a rapid pace. While the trend of rising prices should continue, making for happy sellers, there’s also good news here for buyers. Both the FHFA and Case-Schiller reports show that home values are appreciating at a much slower pace than they were a year ago.

Generally, if gains in home values are slower and more in line with wage growth, it makes homes easier to afford for those who are in market.

Low Inventory Will Still Be A Problem

Low housing inventory is something that’s plagued the market for a while and slowed down home sales. They fell again in July, although permits to build their homes were up quite a bit on the month.

In an analysis written at the beginning of August, Kiplinger notes that although builders know the demand is out there, one of the challenges they’re running into is the cost of building homes becoming more expensive. Although the price for materials has been fairly low, the tariff situation with China could change that so it’s something to keep an eye on. Also, because the economy has been so good, it’s been very hard for builders to find skilled labor. This pushes up costs along with the fact that there are fewer spaces suitable for residential building.

Millennials Will Continue To Make Up The Largest Share Of Home Buyers

Millennials have announced their presence in the housing market, and they’re here to stay. The National Association of REALTORS® does a report on the generational trends among home buyers and sellers.

In their report for 2019, they said millennials make up 37% of all home buyers. Expect this trend to continue if for no other reason than that the term “millennial” has been very broadly defined as anyone between the ages of 21 – 38, depending on where you look. That’s where the majority of growth is in the market.

The Takeaway For Buyers And Sellers

We find ourselves at a point in time with the housing market is really good for both home buyers and sellers. Mortgage rates are low and home prices are still rising. With the impact of the trade war and other global events, it’s very hard to predict where we’re headed. What we can tell you for sure is that whether you’re in the market to buy or refinance a home, now is a really good time to lock your rate. If you’re ready to do so, you can get started online with Rocket Mortgage® by Quicken Loans. You can also speak with one of our Home Loan Experts at (800) 785-4788.

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