Part of my job as the Real Estate Center's chief economist is to field questions from the media. I receive calls and emails almost daily from reporters with questions about real estate market conditions, especially those pertaining to the state's housing market.
Here is one such e-mail exchange I had earlier this month with a WalletHub reporter who had questions about economic indicators, foreign buyers, interest rates, and millennials.
Yes, now is a relatively good time to buy given low interest rates (with expectations of rates rising in near term), some easing on credit terms and mortgage loan underwriting, and the fact that home prices are increasing fairly rapidly in most areas. The biggest negative to buying is lack of choice due to historically low supply of houses being offered for sale. It would appear that many would-be buyers are discouraged from the lack of available choices, which in turn makes them less likely to sell the house they currently own.
Are foreign buyers driving up the cost of U.S. real estate? Which cities are most affected?
Foreign buyers may affect some neighborhoods or a particular segment, but so far they haven’t had that large of an impact on overall markets. Foreign buyers appear to concentrate primarily on the major urban areas, so their relative impact gets “watered down” due to the overall size of the market. For the most part, foreign buyers tend to operate in the higher-priced market segments, so their impact within a narrow field could be important in the short run in a particular market segment.
How likely is it that the Federal Reserve will increase interest rates in the coming months? How will this impact the housing market?
The Fed is most likely to make only one more rate increase this year, probably in December. So far, the Fed’s interest rate changes have had little impact on the housing market as the ten-year Treasury rate and the 30-year mortgage rate have actually fallen following a Fed funds rate increase. Going into 2018, I don’t think the Fed funds rate changes will have that much impact without more pronounced economic changes in the demand for credit.
Why are millennials still sitting out of the housing market? What can be done to increase homeownership rates for this cohort?
I think the millennials are starting to become more active in the homeownership market partially because they are another year older and moving further into the “normal” life cycle conditions that foster homeownership (i.e. they are getting married and having children). The millennials we’ve been talking about for the past five years are now approaching 38 or 39 years old. The 20-somethings are still renters and, yes, there are a lot of them, but the future of the housing market for the next five years is going to be more and more dominated by the so-called millennials.
In evaluating the healthiest housing markets, what are the top five indicators?
Top five indicators (in no particular order): job growth, population growth, family income growth, new home construction, and home prices.