How the Housing Market Benefits with Uncertainty in the World

How the Housing Market Benefits with Uncertainty in the World

It’s hard to listen to today’s news without hearing about the uncertainty surrounding global markets, the spread of the coronavirus, and tensions in the Middle East, just to name a few. These concerns have caused some to question their investment plans going forward. As an example, in Vanguard’s Global Outlook for 2020, the fund explains,

“Slowing global growth and elevated uncertainty create a fragile backdrop for markets in 2020 and beyond.”

Is there a silver lining to this cloud of doubt?

Some worry this could cause concern for the U.S. housing market. The uncertainty, however, may actually mean good news for real estate.

Mark Fleming, Chief Economist at First American, discussed the situation in a recent report,

“Global events and uncertainty…impact the U.S. economy, and more specifically, the U.S. housing market…U.S. bonds, backed by the full faith and credit of the U.S. government, are widely considered the safest investments in the world. When global investors sense increased uncertainty, there is a ‘flight to safety’ in U.S. Treasury bonds, which causes their price to go up, and their yield to go down.”

Last week, in a HousingWire article, Kathleen Howley reaffirmed Fleming’s point,

“The death toll from the coronavirus already has passed Severe Acute Respiratory Syndrome, or SARS, that bruised the world’s economy in 2003…That’s making investors around the world anxious, and when they get anxious, they tend to sell off stocks and seek the safe haven of U.S. bonds. An increase in competition for bonds means investors, including the people who buy mortgage-backed bonds, have to take lower yields. That translates into lower mortgage rates.”

The yield from treasury bonds is the rate investors receive when they purchase the bond. Historically, when the treasury rate moves up or down, the 30-year mortgage rate follows. Here’s a powerful graph showing the relationship between the two over the last 48 years:

How might concerns about global challenges impact the housing market in 2020? Fleming explains,

“Even a small change in the 10-year Treasury due to increased uncertainty, let’s say a slight drop to 1.6 percent, would imply a 30-year, fixed mortgage rate as low as 3.3 percent. Assuming no change in household income, that would mean a house-buying power gain of $21,000, a five percent increase.”

Bottom Line

For a multitude of reasons, 2020 could be a challenging year. It seems, however, real estate will do just fine. As Fleming concluded in his report:

“Amid uncertainty, the house-buying power of U.S. consumers can benefit significantly.”

2 Trends Helping Keep Housing Affordable

Two positive trends have started to emerge that impact the 2019 Spring Housing Market. Mortgage interest rates for a 30-year fixed rate loan have dropped to new lows, right as reports show that wages have increased at their highest rate in decades!

These two factors have helped keep housing affordable despite low supply of houses for sale driving up prices. First American’s Chief Economist, Mark Fleming, explains the impact,

“Ongoing supply shortages remain the main driver of the performance gap as the housing market continues to face an inventory impasse – you can’t buy what’s not for sale.

However, an unexpected affordability surge, driven primarily by lower-than-anticipated mortgage rates, rising wages and favorable demographics, has boosted housing demand.”

Mortgage interest rates had been on the rise for most of 2018 before reaching their peak in November at 4.94%. According to Freddie Mac’s Primary Mortgage Market Survey, interest rates last week came in at 4.20%.

Average hourly earnings grew at an annual rate of 3.2% in March, up substantially from the 2.3% average pace seen over the last 10 years.

These two factors contributed nearly $6,000 worth of additional house-buying power for median households from February to March 2019, according to First American’s research. Fleming is positive about the prolonged impact of lower rates and higher wages.

“We expect rising wages and lower mortgage rates to continue through the spring, boosting housing demand and spurring home sales.”

Bottom Line

Low mortgage interest rates have kept housing affordable throughout the country. If you plan on purchasing a home this year, act now while rates are still low!

Related Article: Is the real estate market getting back to normal?

D-FW home price growth trailed the nation in the fourth quarter

D-FW home price growth trailed the nation in the fourth quarter

Dallas-Fort Worth home price gains were slightly below the nationwide average in the latest comparison.

D-FW home prices rose 3.6 percent in the fourth quarter of 2018 from a year earlier compared with a nationwide 4 percent increase, according to the National Association of Realtors.

While home appreciation across the country has cooled, more than a dozen U.S. metro areas the Realtors group tracked had double-digit gains in the final three months of 2018.

“Home prices continued to rise in the vast majority of markets but with inventory steadily increasing, home prices are, on average, rising at a slower and healthier pace,” Realtors’ chief economist Lawrence Yun said in the closely-watched report. “Housing affordability will be the key to sustained healthy growth in the housing market in the upcoming years.”

The largest fourth quarter home price gains were in Cumberland, MD (up 29 percent) and Boise, Idaho (up 14.3 percent.)

Home prices fell year-over-year in 14 metro areas, with the worst declines in Decatur, Ill. (-10.7 percent) and Elmira, N.Y. (-8.3 percent.)

Among Texas’ big cities, the largest price growth was in Austin where median single-family home prices were 5.9 percent higher than fourth quarter 2017. Austin also had the highest prices with a median of $310,400 at the end of 2018.

D-FW’s median home price of $254,900 is still just a bit below the nationwide $257,600 price, according to the Realtors.

Nationwide home sales by real estate agents fell 7.4 percent in the fourth quarter compared with a year earlier. The biggest drop was in the West where home sales were 13.9 percent below a year ago.

The slowdown in home sales and price increases in the second half of 2018 is continuing into early 2019.

The moderation in the U.S. home market comes after several years of booming sales and huge price gains.

Article by Steve Brown for the Dallas Morning News.

Related article: Buying a Home This Year? Here’s What to Watch.