Factors contributing to confidence in the housing markets

  • Demand is outstripping supply at a time when other factors should be keeping demand low, i.e.  slow job growth.
  • Average Prices are increasing, a very important factor in a true recovery.
  • Every market is recovering, another significant sign that the market is strengthening.

CEO Richard Smith shares his insight with CNN Money.

While it is true that the federal government is doing much to lift up housing by purchasing mortgage-backed securities; in my opinion, this doesn’t spell relief for home buyers who believe that waiting for interest rates to rise will bring about advantageous home prices.   On the contrary, the unintended consequence of these low rates may mean a future real estate market where home owners are reluctant to sell and pay a higher interest rate than they are accustom to.  Think about it this way, if you own a home worth about $200,000 and your payments are based on a 30 year fixed rate mortgage of 3.25%, then your principal and interest payments are roughly $870 per month.  Fast forward to a time when rates are at 6%, your payment for the same house just jumped to roughly $1200.   That’s a $300 dollars increase for the same mortgage value.  To justify that, you would really have to want or need to move.   For those trying to upgrade to a larger home, the hit will be even harder.

New construction won’t be built fast enough

New construction won’t be built fast enough to accommodate both growth and demolished housing units.   The U.S. Population grows generally by 3 million annually.   Most economists believe that about 1.5 million housing units need to be built each year to meet the growth.   The forecast for new construction is not as high as it needs to be, as you can see below.

 

 *Housing Starts stats from the NAR Economic Forecast updated September 27, 2012

At the local level, the Puget Sound population is projected to grow.

The number one rule of economics is if you have more demand than supply, prices will surely rise.     As long as our population is growing faster than new housing inventory, you can bet I’ll be bullish on our local housing market.