The latest real estate news making the rounds, and what you need to know
A new Republican administration, an uncertain stock market and a changing interest rate environment rang in 2017, and the after-effects of such are still being played out in real time. Houston real estate has not been immune to these factors, as well as additional economic realities, such as rising population levels, higher housing costs and an in-flux energy sector.
While real estate values across the country tick upward, many prospective homeowners are still wondering when their time to enter the market will come. This question may best be answered by understanding some of the recent events affecting the larger real estate market in January 2017. By seeing where the market may be headed and where advantages may lie, homebuyers can better gauge their opportunities and find property that meets both their expectations and their budgets.
With this in mind, let's take a look at some of the major news coming from the real estate sector and what this could mean for the average homeowner.
Real estate performs well to close out 2016
The surprising results to the November presidential election didn't deter people from buying homes en masse. Though there was a slight dip in pending home sales in the weeks following the election, the National Association of Realtors pointed out that figure rallied in December.
The uptick in pending home sales was bolstered by strong real estate metrics from the South and West regions of the U.S., which are undergoing explosive population and job growth.
Though this is promising news for the start of the new year, NAR Chief Economist Lawrence Yun cautioned low inventory and higher interest rates could curtail sales growth in the months ahead.
"The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs," said Yun. "Sales will struggle to build on last year's strong pace if inventory conditions don't improve."
It is certainly going to be a bit more expensive for homeowners to purchase real estate in 2017, though wage growth may be able to offset some of these higher costs. Homeowners would be best suited speaking with a real estate professional and several lenders before making a purchasing a decision. The key to homeownership will come down to securing a low enough mortgage rate to make the purchase financially beneficial in both the near and long term.
Have we achieved a fully recovered housing market?
On the heels of December's strong numbers, many analysts and experts surmised that the real estate sector was now healthy enough to be considered "fully recovered" from the depths of the Great Recession.
Using historical data pertaining to the stock market, mortgage rates, economic growth and the U.S. National Home Price Index, S&P CoreLogic Case-Shiller stated the housing market is officially removed from the economic influencers that pervaded the recession, HousingWire reported.
"With the S&P CoreLogic Case-Shiller National Home Price Index rising at about 5.5% annual rate over the last two-and-a-half years and having reached a new all-time high recently, one can argue that housing has recovered from the boom-bust cycle that began a dozen years ago," said David Blitzer, chairman of the Index Committee. "The recovery has been supported by a few economic factors: low interest rates, falling unemployment, and consistent gains in per-capita disposable personal income."
All signs point to a more stable housing and labor situation in the U.S., which is great news for those looking to enter the real estate market soon. Rates are still historically low so now would be a great time to make a purchase before the economy has the chance to undergo any dramatic shifts or corrections.
A reduction in FHA mortgage insurance premiums nixed
One of the last actions former President Obama took prior to leaving office was slashing the mortgage interest rate on Federal Housing Administration loans. This move made it cheaper for FHA borrowers to pay their monthly mortgage insurance premiums and saved homeowners a fair chunk of money over the long term. The National Association of Realtors noted Obama reduced the interest rate from 0.85 to 0.6 percent Jan. 9.
However, this reduction was for naught.
Upon taking office, President Trump told agency officials to scrap the idea and keep rates at their previous levels. While certainly a reversal of fortunes for some homeowners, the number of people this maneuver affected was minimal, and the initial reduction only applied to home loans borrowed in the new year.
It's clear that homeowners under FHA programs should not expect future rate reductions anytime soon and that assistance from the federal government may be harder to come by under the current administration. There are, however, still plenty of opportunities for families to obtain low-interest mortgages from other lenders, eligibility notwithstanding.
Rising mortgage rates on the horizon
Though some homeowners may no longer be able to plan on lower mortgage insurance premiums due to Trump's FHA policy reversal, the vast majority of owners are still enjoying the financial benefits of historically low interest rates. But this grace period may be ending soon.
In the next two years, the Federal Reserve is expected to increase its federal funds target range five times. Three of those hikes are to come in 2017.
While the current overnight interest rate is still just 0.75 percent, it could more than double by the year's end. Currently, the average prime mortgage rate for homeowners, which correlates to the Fed's rate, is in the mid-4 percent range. By the end of 2018, homeowners with similar financial and credit histories may be paying as high as 6 or 7 percent on a loan that would've been several percentage points cheaper in today's environment.
This places the onus on prospects to act now, thus capitalizing on cheaper monthly payments over the life of a home loan. Buyers should also keep in mind that the Fed typically acts on a quarterly basis and any rate adjustments can take several more months to truly be absorbed by lenders. This means buyers needn't be worried about seeing dramatically more expensive loans coming from thin air - the process will take time, allowing everyone the chance to plan accordingly.
A new form of real estate payment?
As prospective homebuyers bargain with lenders to see what they can expect to pay in interest, they may also have another payment option in mind: bitcoin.
While not yet ubiquitous in the payments industry, bitcoin is becoming more than just a nebulous financial concept that's difficult to understand. This is evidenced by a man in California who recently purchased his new home entirely in bitcoin, a digital currency that has proven to be more insulated from volatility commonly known to cash and standard exchanges.
The Coin Telegraph reported many familiar with the new currency refer to it as "digital gold" for its staying power and practicality of use. During the transaction process, the value of bitcoin actually reached an all-time high, providing the buyer with 25 percent more purchasing power than he originally planned for. In effect, he bought a home 25 percent less.
This sort of trend won't likely catch on soon at a comprehensive scale, but it does point toward a future real estate may be poised to settle into. If consumers are no longer bound by conventional loan repayment models, then lenders will have to adjust their own transaction processes to be as inclusive as possible. Additionally, as the above story points out, there are savings opportunities inherent with bitcoin, or whatever future payment format may arise, both on the lender and borrower side.
Having walked through a few of the top happenings in real estate, now it's time to put what you know to good use. Speak with a professional agent to help guide you through the homebuying process. If you're searching the for Houston real estate anytime soon, be sure to check back for updates and helpful advice to make your purchasing process all the more easy.
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