Blog posted On June 21, 2018
With last week’s rate hike in the books and more expected in the coming year, the lending landscape will undergo some gradual changes. Buying and selling a home is a big financial commitment and one that should include the guidance of trusted real estate professionals. Last week, HousingWire compiled a list of the top issues impacting real estate and mortgage lending over the next three to seven years based on the Counselors of Real Estate Chair Joseph Nahas’s predictions.
The Federal Reserve has raised interest rates seven times since the end of 2015, as the central bank starts to gradually return interest rates from the near-zero levels set following the Financial Crisis. After several years of rock-bottom interest rates, the cost to borrow money will start to increase accordingly. CRE Chair Nahas explained both sides of the rising interest rates, “Rising rates can actually be good – and bad – for the economy. […] It may be painful in the short run. We may have a slower number of new home purchases or resales, or higher mortgage rates but inflation won’t get out of control.”
Global Political Changes
Many housing professionals agree, rising interest rates are not the biggest challenge home buyers are facing today. It’s not enough homes for sale. As buyer demand continues to outpace supply, the construction industry is struggling to replenish inventory. With foreign policy changes related to tariffs on imports and exports, the cost of construction materials has started to increase, further straining construction activity.
Home Price Appreciation
Limited for-sale inventory has led to rapid home price appreciation in many metros across the country. However, as interest rates rise, home price appreciation will likely slow. Most households have a limited budget to spend on housing costs.
Generations and Demographics
While there is plenty of discussion surrounding Millennial-aged first-time home buyers struggling to enter the market, the CRE advised this is the first time in over 50 years that four generations are influencing the real estate market: Baby Boomers, Millennials, Gen X and Gen Y. Baby Boomers are staying in their homes longer, limiting the availability of larger homes. Thus, Gen X and Gen Y are not moving up, and staying in their starter homes longer, limiting the availability of smaller homes for first-time home buyers. Millennials are left delaying homeownership or seeking alternative inventory like fixer-uppers.
Technology continues to disrupt every industry, including real estate and lending. Digitization influences everything from how the mortgage is originated to how construction materials are purchased and shipped. CRE Chair Nahas specifically referenced to blockchain as a “tech wild card” likely to disrupt the housing industry.
The housing market is influenced by larger economic forces like foreign policy and Federal Reserve decisions. The best way to be prepared when buying or selling a home is to partner with a trusted mortgage professional. The lending landscape is always changing and the right loan officer will know how these changes will impact your home search.