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Even busy, expensive markets seeing high demand

May 2, 2018

One of the big trends in the real estate sector over the past several months has been increasing interest among would-be buyers despite the fact that mortgage rates and prices alike are on an upward trajectory. There is seemingly no point in the near future at which the combination of rising demand and declining affordability will deter interested parties from trying to buy a home, and that's now true even in some of the most expensive markets in the country.

"Most current owners aren't looking to sell."

Indeed, the fact that mortgage rates are on the rise - and expected to remain on that path at least through the end of the year and likely beyond - seems to be more incentive than impediment for would-be buyers these days, according to Marketwatch. However, this comes at a time when most current owners aren't looking to sell their homes because they have locked in historically good mortgage terms, so even as buyers try to become more proactive, they're facing stiff competition.

Taking a look
Data from Credit Suisse suggests that across many of the largest markets in the country, there is a relatively neutral amount of buyer traffic in the market, but that there are significant differences between some busy markets (like Phoenix or Minneapolis) and quieter ones (like Nashville or California's Inland Empire). In a lot of the latter markets, though, the lack of buyer traffic doesn't come for lack of interest among shoppers, but rather that so few people are now selling that there just isn't enough inventory to come close to meeting demand.

Likewise, in some slow markets - like the Inland Empire - the slowness also comes because prices have risen so sharply as to be instantly unaffordable for many shoppers, the report said.

A different kind of hurdle
Experts now say those issues are also one of the biggest impediments for the inventory as a whole, because any current owners who might be looking to sell is so concerned about getting into a bidding war or not being able to find an affordable home that they now refuse to sell their own homes, according to The Real Deal. This creates something of a vicious cycle in which sellers won't sell because other sellers won't sell, and as more buyers come into the market, that only exacerbates the inventory tightness in many busy markets.

These issues come despite the fact that most sellers would be able to move their homes, often at a significant profit, within just a few weeks of putting those properties on the market, the report said. Here, too, the issue of current homeowners having refinanced to mortgage rates in the low 3 percent range is rearing its head; their rates would often go up by half if they were to seek a new mortgage now, and they too would have to face today's much higher prices, likely muting the benefits they would get from selling their own much-appreciated homes. This is even true of homeowners looking to significantly downsize.

Unfortunately, there might not be a good solution to the issue any time soon, because buyers today are typically are motivated to move into new homes as soon as possible, and that likely means they want sellers moving out as soon as possible, putting more pressure on owners to find a home almost as soon as they move out, the report said.

"Rhode Island saw home prices increase 8.2%."

A perfect example
Due to its small size, Rhode Island may not often be thought of as being a particularly hot market, but even there, home prices are rising at well above all-time averages, and inventory is shrinking quickly, according to the Rhode Island Association of Realtors. In a historically normal housing market, home prices only increase about 3 percent year over year, but in February - the most recent month for which data is available - the Ocean State saw home prices increase an average of 8.2 percent.

Meanwhile, sales activity increased 4.5 percent over the same period despite the fact that inventory dropped by nearly one-sixth, the report said. Moreover, despite the increased activity, pending sales dropped for the 15th month in a row. 

Joe Luca, 2018 President of the Rhode Island Association of Realtors, said this was somewhat business as usual as the spring sales season approached, but that buyers seemed to be getting a head start on moving into the market because of the expected competition they were likely to face as March and April approached. He added that the industry as a whole was concerned about the dwindling inventory, and its effect on both sales activity and prices.

"Homes are moving quickly and sellers are receiving multiple bids," Luca added. "However, recent reports from the Federal Reserve indicate that rates are going up. That means that affordability will decrease, culling out prospective buyers. Also, if homeowners wait to sell, they will also be paying more interest on their new loan."

The sooner current or prospective homeowners alike can get into the market, the more likely they will be to find and lock in a favorable deal as affordability continues to decline going forward.




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