Today's Housing Market Indicates A Strong Economy

Real Estate Survival Guide with Terry Story

During this week’s Real Estate Roundup, Steve spoke with Terry Story, a 31-year veteran at Keller Williams about the cyclical nature of the housing market. Just like the stock market, the real estate industry is cyclical, with housing prices oscillating back and forth between periods of rising prices and falling prices. Terry and Steve talked about how the real estate industry is often a good economic indicator, revealing how the economy is doing and what direction it might be headed.

Watching The Trends

When you’re trying to gauge how pretty much anything is doing, you watch out for trends or patterns. This is especially true when you’re trading in the stock market or thinking about buying a house.

A lot of people are asking when the next recession is going to come. Right now, the stock market is at all-time highs. But the prolonged, substantial bull market has some people starting to worry. “Have prices topped out? Do I need to sell now?”

We all know that the stock market is viewed as an economic indicator. The real estate industry is similar in that way because overall economic conditions affect the real estate industry just as they do the stock market. That means that housing prices are also an economic indicator, as they reflect how the overall economy is doing. Housing prices never stay flat for long; they’re always either going up or going down.

Real estate agents look at the trends: units, pricing, everything. Are they going up (higher home prices, fewer days on the market, more sales) or down (lower home prices, sitting on the market longer, lagging sales)?

What The Real Estate Market Is Telling Us Right Now

There are always unknowns, variables that affect trends in the housing market. But what we can see right now is that the market is really strong. Low-unemployment levels coupled with super low-interest rates and homes in an affordable price range are key factors in the current market. Homes are starting to get priced higher, something that would normally lock out more buyers. But that’s not happening at the moment because interest rates are at an all-time low. They’ve dropped a full percentage point over the last year. For homebuyers, a simple interest rate drop of 1% means they can afford a 10% higher home price. It’s a big deal.

If you look at the stock market, as interest rates go down, we see asset prices rise. This is what’s happening in the real estate market, too. People can borrow money cheaply, meaning they can borrow more and buy bigger and better homes. But this is a bubble that will pop eventually. What we’re going to start seeing is a mismatch between median annual income and median home prices. But because interest rates are so low, the median-home price isn’t being adjusted in line with income. Eventually, if median income doesn’t start to rise, the median home price will have to adjust downward. The market will start to reverse itself. Or if interest rates start rising, that will change the trajectory of the market, too.

Steve noted that the good news for the moment for homebuyers is that the super-low interest rates mean that even though home prices are rising, homes are more affordable. And the good news for sellers is that home prices are up. They can ask top dollar for their homes and probably get it.

If you’d like to learn more about buying or selling a home or to learn more from Terry, check out Keller Williams!