The last time we saw a balanced market was late 1990s, meaning many sellers and buyers have never seen a normal housing market. Windermere Real Estate’s Chief Economist Matthew Gardner looks at more longer-term averages, what does he see for the future of the housing market?
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
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The median price of single-family homes sold in King County hit a new all-time high last month — $514,975 — amid record-low inventory, heralding even more intense bidding wars ahead in the typically busy spring home-buying season.
Ominously, the more affordable Snohomish and Pierce counties also face a historically low inventory level, according to a Seattle Times analysis of data from the Northwest Multiple Listing Service.
One widely-watched gauge of supply — the ratio of active listings to pending sales — hit its lowest level since at least 2003 in all three counties in February, according to the Times’ analysis. King and Snohomish counties each had less than a month’s supply, while Pierce had just over a month’s supply.
The historic shortage of homes for sale, combined with a recent drop in interest rates, has caused the dramatic run-up in prices, experts say. In February, King County had 1,923 homes listed for sale, the MLS reported, but a greater number of pending sales that hadn’t yet closed: 2,299.
“We cannot continue to sell more homes than we list,” said Matthew Gardner, chief economist at Windermere Real Estate. “When are we going to start seeing some listings? That scares me more than anything else.”
Single-family home prices in the city of Seattle jumped 24 percent over the year to a median $644,950. Despite an older housing stock, Seattle is ground-zero for the region’s job growth.
Expedia and Weyerhaeuser are moving their suburban headquarters to Seattle. Amazon.com recently opened its new high-rise campus in South Lake Union. And Silicon Valley titans like Facebook and Apple have established satellite offices here.
This article originally appeared in the Seattle Times. To read more, click here.
This article originally appeared on Inman.com
After seven years of some of the lowest interest rates in recorded history, the Federal Reserve has decided to raise the key Fed Funds Rate by 0.25 percent, which is causing some to be concerned that it will lead to a jump in mortgage rates and negatively impact the US housing market.
So, the question everyone wants to know is, do we need to worry about interest rates leaping?
While I expect there to be some volatility in rates for a while, I don’t believe the real estate market will implode in a rapidly rising interest rate environment. So, yes, interest rates are going to rise modestly, but no, I don’t think we need to be overly worried about it.
To qualify this statement, we need to understand that mortgage rates do not run in “lock-step” with the Fed Funds Rate. Although the Fed Funds Rate is a bellwether for the greater economic environment, there have been times when these two rates have moved in opposite directions, such as we saw in 2004/2005.
It’s also important to understand that while interest rates for revolving credit, such as credit cards and home equity loans, are tied to the Fed Funds Rate, non-revolving loans – like mortgages – are not. Mortgage rates are tied to bond yields – specifically the 10-year treasury.
So what do I think will happen?
I believe interest rates will rise above 4 percent, but we will not see a sharp spike in rates. The Fed has stated that any upward movement in the Fed Funds Rate will be slow and steady, and will reflect the greater economy. And I believe that mortgage rates will follow suit. Additionally, mortgage rates have already moved higher in anticipation of an increase in the Fed Funds Rate.
That said, it is worth noting that any weakness in the global economy can actually have a downward effect on interest rates. This is referred to a “flight to quality”. In essence, investors seek safe haven during times of economic uncertainty. If markets outside the U.S. continue to underperform, there will likely be increasing demand for bonds which will drive up their price and drive down interest rates. Between China, the Eurozone, war in the Middle East, and a massive drop in oil prices, it's certainly possible that the price of mortgage backed securities could rise, leading U.S. mortgage rates lower.
Interest rates could not realistically stay at their current levels forever. But an increase should not be a great cause for concern. Yes, an increase makes mortgages more expensive, but not to a point where they will have a negative effect on home values. That said, the rate of home price growth will undoubtedly slow in the coming year, but that isn’t necessarily a bad thing.
A little perspective might help: the average rate for a 30-year loan in the 1970’s was nine percent. It was 13 percent in the 1980’s and eight percent in the 1990’s. And yet people still managed to buy and sell homes throughout those years. With that in mind, the rate increases we’re likely to see in 2016 are nothing to fret over.
The increase in the Fed Funds Rate should be taken as a sign that our economy is expanding and is a preemptive move to limit anticipated inflation. While interest rates have risen from their all-time low, they are still remarkably favorable. And will remain so through 2016.
Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.
What the data shows
So what does this all mean?
This is a great piece from the Consumer Financial Protection Bureau. Learn about the new federal changes enacted this month that add tons of transparency to the mortage loan disclosure process! As always, your comments are welcome!