Real Estate Market Snapshot – Election 2016

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Ever since the rather surprising outcome of the 2016 election, we have been asked by many how we think the new administration will affect the real estate market.  Like the stock market, the real estate market is not entirely predictable but there are some clues.
Also, as in the stock market, the real estate market has individual sectors that may react differently from one another.  For example, impacts of geographic areas, varying price points (entry-level homes versus luxury homes) and condominiums versus single family homes may present significantly different trends from one another.
Many news articles focus on national indicators such as the S&P Case Shiller national home price index and while this is a good measure of the general direction of the marketplace based on nationwide economic forces, one should also consider local supply and demand, employment rates and other area-specific pressures.

Mortgage Interest Rate Trends - November 2016. Chart from

Mortgage Interest Rate Trends – ONE MONTH November 2016. Chart from

Since the election this November, we have watched the interest rates creep sharply upward, now hovering around 4.0% for a conforming loan.  While still at historic lows, this is a high water mark for the last couple of years.
Inventory of available homes for entry and mid-level home buyers remains very tight in most areas of the country and this is especially true in the Metropolitan Washington, DC area.  As such, homes that are priced well and/or in good condition have little trouble selling in 30-60 days and sometimes in much less time.
Employment is quite high in the area compared to national averages and thus housing in and near “the beltway” remains strong even while some other metropolitan markets in the U.S. are soft.
Mortgage Interest Rate Trends - Three Years 2013-2016. Chart from

Mortgage Interest Rate Trends – Three Years 2013-2016. Chart from

In our local market around Bethesda, Maryland, we have seen a dramatic increase in the inventory of homes in the luxury home market price points above $1,000,000 and especially in the new home market around the $2M+ range.  Builders re-entered the market en masse around 2013-2014 and as such, there is quite a lot of inventory at this time.
Today, there is roughly a 10-12 month supply of new homes in Bethesda, indicating a buyer’s market.  Whereas, below $1M, housing availability is woefully inadequate for the current demand and typically, those homes sell quickly.
In an article dated November 29th, 2016 from Christopher S. Rugaber of the Associated Press, he states that after four years of steady gains since 2012, the U.S. housing market has fully recovered from the downturn in 2008.  However, he further indicates that because of the low supply of homes and subsequent upward pressure on prices nationwide, affordability has become a problem for many buyers.
He remarks, “Since the real estate market began recovering in 2012, prices have grown much faster than Americans’ incomes. That has made it difficult for many would-be buyers, particularly younger Americans, to take advantage of low mortgage rates.  Home prices have increased at a 5.9 percent annual rate, adjusted for inflation, S&P says. Yet Americans’ after-tax incomes have increased just 1.3 percent during that time.”
If the new administration creates more jobs and if incomes rise, perhaps the housing market will continue its steady upward trend nationally, even in the face of modest interest rate increases.  However, if rising home prices continue to outpace incomes coupled with ever-rising interest rates, further hampering the ability of first-time and move-up buyers to purchase homes, the market may suffer in all price points.
Only time will tell how the market will respond to the new administration but the wise buyer will consider purchasing a home sooner rather than later to capture historically low interest rates while they are available.