Housing Demand Sees Biggest Drop in Two Years
If you’re a real estate agent, you may be seeing some noticeable shifts in the market. There aren’t as many consumers showing up to buy a home. It is too soon to determine exactly what this drop in demand means for the industry long-term.
Real Estate Indicators Reveal a Drop in Demand
The kids are out of school and the weather is warm. It’s high-season for homebuyers to get busy and start looking for their dream home. That’s why it is so surprising when demand falls in the summer, as it did in June 2018.
The presumption most homeowners have about summer break is that it’s the best time to sell a home. The kids are out of school and it’s the most convenient time to move for most people. UPI cites Redfin’s website report about housing demand decreasing 9.6 percent below last year’s figures. A slow summer worries real estate industry leaders and speculators alike, however it does create some favorable factors that allow home buyers solid room to negotiate.
UPI also reports that the construction of residential units fell in June 2018, according to the U.S. Census Bureau. As a major predictor of economic things to come, the real estate industry is carefully scrutinized. Real estate industry professionals, economists and the general public want to know if we’re nearing the end of the latest real estate
How Millennials Impact Real Estate Demand
Millennials continue to struggle to buy their first home. Huffington Post explains that student debt is a big part of their problem. The median amount of student debt this generation is paying off is $41,000. Millennials are cash-poor, spending up to half of their income on student loans.
A Perfect Storm Brews in the U.S. Housing Market
No one can deny that low-cost housing is hard to find. The explanation for this trend is a simple one. Huffington Post reports that homeowners are making 50 percent more than they did in 1960, but home prices have increased 112 percent, respectively.
Based on these statistics, it is easy to understand why homes are becoming unaffordable for a large segment of the population. Waning demand is simply a response to unaffordable prices for a majority of first-time homebuyers and nervous resellers as they watch interest rates rise. When interest rates increase, homeowners think twice about selling. No one wants to pay a higher interest rate, effectively paying more for the same amount of house.
Another possible explanation for the drop in housing demand is President Trump’s tax bill. This bill has discouraged new purchases by older and more established buyers in the luxury home market by eliminating tax deductions on mortgages over $750,000. According to Bldup, the interest rate cap was set at $1 million before the new law passed.
The Case for a Cooldown of the Real Estate Market
Bloomberg reports that the U.S. housing market is beginning a downward trend. New home purchases fell to an eight-month low in June this year. That fact has served only to fuel industry concerns, sparked by the news that recorded existing-home sales have been dropping for three months in a row.
A discussion of interest rates is always relevant when the health of the housing market is being scrutinized. Mortgage interest rates are expected to reach almost five percent by the end of 2018. Considered together as two major factors that affect the real estate market, rising home prices and interest rates are certain to apply downward pressure on the industry.
There are different opinions circulating about whether the real estate market will continue to flourish or instead begin to slow for the long-term. Always a strong predictor of economic health, the real estate market has been on a hot streak for several recent years. While the numbers are starting to reflect a slowdown this summer, it is impossible to know for certain whether the slowdown will continue.