Last updated: January 16, 2018

Is a Buyer’s Market Coming Soon?

Many regions in the United States have been a seller’s mortgage market for years. There are a number of reasons that the market has been so favorable to the seller, but factors are pointing to a switch. Those sellers that missed the wave that crested to its height over the summer may have some regrets in the future. There are signs that the mortgage market is about to make a switch.

Let’s examine a few critical factors that indicate this changing trend.

Low Inventory

The number of houses for sale has been very low compared to the demand. The millennials, numbering 60 million, are the largest living generation. They are just entering their prime years for home buying. At the same time, the United States has had a critically low supply of housing. This is particularly true with starter homes.

Redfin recently reported that 1 in 4 homes went above list price. That’s the highest percentage that they have ever recorded. Even more, the same report revealed that the typical home went into contract within just 40 days. That’s a full 10 days faster than the previous year.

Rising Rates

Where competitive interest rates in 2016 kept buyers in the market despite the rising home prices due to international market conditions, 2017 is telling a different story. The Fed has raised interest rates several times already this year and industry experts expect more rate hikes to come.

The Federal Reserve raises rates for two primary reasons. The first is if inflation is running higher than normal and the second is if the unemployment rate is lower than normal. Higher rates might mean a cost increase to borrow money, but it also means better returns for investors. The Fed weighs all of these factors when it makes rate adjustments.

Decreasing Demand

With low inventory driving up prices and interest rates continuing to climb, a lot of potential buyers are deciding to hold onto their well-earned money until conditions are better. Fewer borrowers means less demand, which means that those buyers still in the market will have less competition in securing a home.

Another Redfin analysis, the Demand Index, confirms this. There were fewer home sales in July 2017 than the previous year over 15 observed metropolitan areas. In addition, there were drop-offs in home tours and fewer offers made by buyers.

Retail Construction

It has been a slow recovery for the home building industry after the housing bubble burst in 2008. A lot of skilled labor left the construction market at that time and did not come back when the market started to recover. As a result, there were fewer people to build homes and fewer homes produced. That trend seems to be improving. According the NAHB, home construction has seen an increase of +2.3% so far this year.

The effect of the hurricanes in Texas and Florida remain to be seen on home builders’ capacity to build new homes.

Pacific Union Financial

Pacific Union Financial, LLC is a full-service mortgage lender providing originations and loan servicing across the United States. A privately held direct lender with Fannie Mae, Freddie Mac, and Ginnie Mae approval, we originate loans through our Retail, Wholesale, and Correspondent channels. Let us know how we can help you expand your business.