Why The Downturn In The Housing Market
In A Robust Economy?
When I explain to sellers the reality of what their home is worth in today’s real estate market, they repeatedly ask me, “Why is the housing market in a downturn while the economy seems to be chugging along?” There have been countless articles, blogs and newsletters written on the subject, but yet when it’s time to sell, sellers are still baffled.
To tackle the question, one needs to closely examine key factors of economy, not just a bullish stock market or historic low unemployment. A few points to consider:
After the market crash in 2008, the Federal Reserve kept interest rates low to stimulate the economy. It took a few years, but soon banks start lending again at super (artificially) low interests rates. Money was cheap. The stimulation started working on the housing market in 2010 and 2011 like crack, so much so that, by 2015, it was up double and triple digits in most corners of the U.S. However, a strong economy stokes fears about inflation, which in turn drives the Fed to raise interest rates, which it has been doing at a slow but steady clip. Last week, according to Bankrate [link here], mortgage rates rose to 5.10 percent, a seven-year high. A year ago, they sat at 4.10 percent.
As all this interest rate correction was happening, wage growth remained stagnant. Millennials, who are now at the prime age to purchase home, never really had the wages to afford the housing market’s sharp increases. Now, you’re seeing the housing market forced adjust itself to a buyers’ market when the bulk of buyers have been priced out of the market!
Higher interest rates + minimal wage growth is a sticky equation to overcome. And while wages have started to tick up ever so slightly as of late, today’s buyer pool refuses to pay the prices earned in the heady cheap-money days of 2015. As a result, you're seeing property sit on the market for twice or three times as long as before, and many sellers are forced to drop prices to attract offers. Especially if they weren’t priced appropriately to begin with.
But when a housing market shoots up past the rate of inflation and wage growth, the old adage comes to mind: If something can’t go on forever, it won’t.
History Lesson Did You Know?
December was originally the tenth month of the year in the Roman calendar. It gets its name from the Latin word "decem" which means tenth. However, when the Romans added January and February to the calendar, it became the twelfth month. They still kept the name, though.
Radio City Christmas Spectacular
Dec. 1, 2018 - Jan. 1, 2019
For nearly a century, the Rockettes have appeared at Radio City Music Hall in hundreds of stage spectaculars, and this year they return with a new finale. Bring the entire family for a show that's sure to entertain. Buy tickets here.
December 8, 2018 (10 a.m. to 8 p.m.)
Give back with the masses at this year's Santacon, a charitable bar crawl which has raised more than $400,000 over the last 5 years. Grab your Santa hat and donate here before lining up for the infamous daytime event!
Make Music Winter
December 21, 2018
Make Music Winter features a dozen musical parades on the streets and sidewalks of NYC on the first day of winter. Come watch, or join in for free! For more information, click here.
New Years Eve in Times Square
December 31, 2018
The age-old tradition of New Year’s Eve in Times Square features dazzling lights, famous musicians, balloons, fireworks, and a crystal ball that drops at midnight. To join the crowd and see it live, be sure to arrive early! Click here for more info.
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