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Advice For Pros / In the News · March 30, 2016 · AUTHOR: Udi Dorner

Economic Volatility: Market Trend Impacts Real Estate Inventory

  how the economy affects the market value of your house Real Estate Inventory and Market Trends continues to be highly volatile and is largely regionally based. This volatility can be seen in different areas around the country and is ultimately driven by supply and demand of real estate types and location. Remember the adage in real estate? Location…location…location…. This continues to factor heavily in whether homes are purchased or sit on the market. This blog considers other factors impacting market trends and real estate inventory. The first trend that needs to be considered is economic volatility, which should be considered regarding cycles. Cycles can be long-term or short-term and involves historical guidelines as well as current market factors. The most recent real estate market downturn occurred as a result of the recent recession. The recession continues to play a significant role in attitudes and fears. Many homes were lost as a result of the market downturn. The recession created a situation that left premium home buyers with the greatest leverage. Many entry-level homeowners will not be selling or moving up in the housing market anytime soon because the perceived risks far outweigh the size increase that would happen if they traded up into a mid-level home. It would take skill and effort to convince this type of homeowner to give up their “good deal” for a risk, especially in some regions of the U.S. where the economy has not recovered as elegantly. Moreover, any decrease in beginner homeownership is primarily due to the homes that were lost and are now owned by investors who renovated and turned them into apartments or rentals. This type of buyer has turned into hit television shows on HGTV. While some more seasoned homeowners decided to weather the recession and kept their homes and now owe more on the home than it is worth.  This crisis has affected the three inventory categories but it is mainly the beginner have taken the biggest hit. Here are a few statistics to consider:

  1. The number of starter homes on the market has dropped by 43.6% and the money needed to buy such a home has increased by 5.6%. The listings for starter homes has dropped from 30.2% to only 27.7%. These numbers show that people who want to buy a house will need to have a better cash flow in order to do so.
  2. Trade up homes have also been on the decrease; there are only 41% trade up homes on the market. Potential buyers of these homes will have to spend 2.6% of their income to buy these homes.
  3. The premium home market has seen the smallest amount of impact and has decreased to only 33.4% and potential buyers on the premium side of the spectrum will need to spend 1.6% of their income to buy houses in this category.

A significant increase in housing prices have gone up over the past four years, especially in some more desirable regions of the country where there the economy has improved and where potential homeowners can find work. Employment factors must be considered in whether potential homeowners choose to purchase a home.  Potential buyers of homes should be aware of these factors to make an informed decision of the factors in the housing market in their local neighborhood or the area where they might want to purchase. For example, home prices in California continue to be high in places like San Francisco, and potential homeowners may continue to rent there, because they simply cannot afford to purchase a home. The salaries associated with the jobs in this location simply does not make buying affordable. When considering a home for purchase, the two homes that are easier to purchase include the trade-up and premium home, because the people who own these particular homes are typically better off and not the first time buyer who can only get a small loan based on their income level.  People are afraid to move up in all three segments because there is a chance in all categories that money could be lost, and or they just can’t afford it right now. In Orange County the median income needed to buy a home in the starter category increased by 78.2% of the overall loan amount. It has also created a premium home buyers’ market, because now only someone who has experience in homeownership will buy one and there is also an increased number of premium houses on the market. With today’s prices, someone who buys a home will have to spend nearly 70% of their income on a house; this has increased 29% from what would had originally would had needed to be spend on a house in 2012. Evidence suggests that those who want to buy houses in the starter market will have to settle for a house in a different area than they work or want to live, and it will also be smaller than what the average starter home is. This may also change what people consider the “American Dream” if so many people have to consider if they can afford the house that they want. This is something that will affect Millennials the hardest and will impact their return to the suburbs. The starter home will begin to disappear as we know it today and prospective buyers of these homes, will have to be able to adapt to the buying conditions of today’s world to afford the trade up levels should start up level housing disappear. In the meantime, the wealthy will be able to buy much larger houses. In the grand scheme of things, the lower quantity of houses and the desire to own will also increase the value of houses on the market due to how many people place offers on homes. Houses in the starter segment are becoming increasingly difficult to find, especially in the location where people need to work or want to live.   Setschedule has changed the way real estate marketing is viewed, by changing the way REALTORS® access clients and listing appointments. SetSchedule is a “first of its’ kind” exclusive membership based model that provides verified appointments, marketing tools, and elite invite only networking events for its members. By blending new technologies, and thought processes with proven success methods Setschedule had incurred record producing results unseen in the industry.

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