What’s Influencing a Stall in the Housing Recovery?

Over the past twelve months, the housing market has been booming with a much anticipated recovery. This rebound was fueled by many factors falling in line at the right time; low prices and low interest rates combined with a small supply of houses available, ultimately prompting many investors and buyers to enter the market resulting creating bidding wars which began to drive prices up.

Now, prices are higher than we’ve seen in years, and mortgage rates have been moving up as well. This has lowered affordability, and the market is starting to cool down because of it, leading to many concerns over a short-term stall.
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While it is still hard to tell what the final impact of the recent cooling will be, there are a few key factors playing a role in the market’s cooling and recovery which should be watched.

One factor which should be noted is how quickly affordability has decreased. Prices have moved up at unbelievable rates since a year ago, and now that mortgage rates are increasing, many buyers are being deterred to enter the market. New home orders rose only by 1% in August from the year before, major decline from the 11% increase in July.

Lack of available housing is also having an impact on the recovery. While demand plays a large role in both the amount and price of houses sold, the lack of available housing is still holding back many buyers. Listings were up by 20% in August from the start of the year, but this is still far below the already depressed levels of one year ago.
Another factor is the concern over the market’s state. With such extreme changes to the market, many agents and brokers have been concerned over another bubble. This fear has led some to act irrationally, which only leads to more ups and downs in the market. While some of this apprehension is warranted, it’s important to realize that such extreme changes are not sustainable, and that the market will balance out. The recent cool down is a perfect example of this.

Finally, the change between investors and occupants as buyers in the market will have a major role in where the market goes from here. The recent rise in prices has been encouraging many investors to withdraw from the market, which has lowered overall demand, and ultimately is slowing the rise in prices. Now it is up to those who intend on living in the home they buy to get into the market and pick up the slack left over by investors.

What are your thoughts?

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  • Anne Swanson

    Affordability has definitely gone down in LA. At least this stall will give recent sales a chance to catch up with appraisals which have been coming in too low for 20% buyers to qualify.