It’s about the time of year when we see the increase in questions such as “How can I understand what the market is doing and what steps I should take to get myself and my home ready to sell this year?”
There’s no simple answer to the first part of the question. To understand what the housing market is doing and where it might be headed requires an understanding of the local economy, for it’s one of the major forces at work on the housing market.
For a basic understanding of the real estate market, however, let’s look at three indicators.
When an area’s labor market is weak, people typically don’t buy homes. This includes not only those who are unemployed, but those who feel their jobs may be in jeopardy. Weak employment numbers therefore equal soft housing demand.
But — right now at least – the country’s unemployment rate is 3.5 percent, a 50-year low, according to the Bureau of Labor Statistics.
Employment increased in a number of segments, including healthcare and leisure and hospitality (both segments saw the addition of 45,000 jobs), professional and technical services (31,000 jobs) and several other areas.
The truth is, across the country, states are facing labor shortages in construction, manufacturing, cyber security and many other industries. Some municipalities are creating marketing plans to lure full-time residents in the hopes of filling these jobs.
New residents need homes.
While unemployment is closely aligned with affordability, it isn’t the only factor that determines whether or not people can afford homes in the local real estate market.
In fact, there are three components to home affordability, according to Phil Pustejovsky, author of “How to be a Real Estate Investor.” These include:
- Home prices
- Household income
- Interest Rates
Home prices are largely a result of supply and demand, something that is easy to determine either by asking your real estate agent or reading the local news.
In fact, we’re seeing this principle at work right now. With more buyers wanting homes than the market can supply, home prices rapidly increase. Then, there’s the opposite, when there are few buyers in the market and many homes for sale (known as a “buyers’ market”), prices tend to soften.
Household income must be high enough to afford homes. The median household income in the U.S. in October of 2019 hit a record high at $66,465. It took a dip in November, however, to $66,043.
The median price of a home, nationwide, is $271,300.
Lenders want to see a monthly housing payment that takes up no more than 28 percent of your income (pre-taxes). In this case, the median wage earner has about $1,541 a month in income to go toward a mortgage payment.
Interest rates, however, are key to affordability. As you can imagine, no one really knows what will happen with mortgage rates in 2020. Some economists are forecasting an increase, others say the opposite. Keep an eye on interest rates because when they increase, the homebuyer pool shrinks.
Forecasting the Future
As you’ve probably guessed, nobody has a crystal ball when it comes to forecasting the future of the housing market. But, being ready for anything will put you in the best position.
Ready the home for the market by making basic repairs, painting and cleaning. We’re happy to walk through the home and help you decide which tasks to tackle based on a likely return on your repair dollars.
If you’ll also be buying another home, it’s not too early to choose a lender. Then, when the time comes to obtain your loan pre-approval, you’ll be ready to jump right in.
Again, feel free to reach out to us with any questions or concerns. We’re happy to help.