Planned to open this blog with an analogy comparing the price of a Candy Bar and the price of homes. Believe me, it was a great thought…Sounded great in my head…On paper, it just did not have that same…So, instead, we are going to discuss some recent quotes from the CEO of Zillow and from our Federal Reserve Chairwoman about the US housing market. After these quotes, we will discuss what all this could mean for your real estate financing needs. If my confidence in the real estate market was a stop light (“red” – rent or stay in current home, “yellow”- proceed only with caution, and “green” – go for it), then, currently I feel a strong yellow caution flag. In my concluding remarks we will discuss what a yellow light means for your future real estate purchase and refinance needs.
In the next few years housing prices could increase only slightly. The CEO of Zillow stated recently that he believes house prices will increase only 3% in 2014 –a considerable decrease from the year over year first quarter 2014 increase of 5.7%. In most metropolitan areas, your inflation adjusted home value could remain flat in the next three to five years as the slight year over year increases in home prices almost keep up with the slight year over year inflation.
Our Federal Reserve Chairwoman Janet Yellen recently commented that the current housing activity has “remained disappointing so far this year and will bear watching…the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.” Does our Federal Reserve Chairwoman believe a second housing market price dip is possible? I no longer believe that a second housing market price dip is probable. Instead, housing prices could muddle along for the next three to five years.
Does muddle rhyme with yellow? (Not really) However, I am seeing “yellow”. Good news is that “yellow” has a double meaning—yellow means one thing for purchases and can mean quite the opposite for refinances. For purchases, yellow means caution. Be cautious. Know your real estate market. And, surround yourself with a team of advisors who look after your best interest (see my book Beyond the Stampede for a further discussion about “knowing your market” and “team of advisors”). For refinancing, “yellow” means “get ready for “green”. Yes, we have all heard that the federal stimulus is over and rates are going up. However, the US real estate market is in a stall, US retail is so-so, and Europe is fighting off deflation (deflation is a cycle much worse than inflation). Since the Feds starting tapering this year, interest rates have decrease a half a percent. We could see further decreases. So, be ready.
Limited supply will continue to advance the price of housing. Our limited supply of housing is due to both the still large percentage of homes that have negative equity and the lack of new single family home construction. As the supply of housing remains weak, housing price will reactively increase. How much will the prices increase? Will the increase in house prices be kept in check by the affordability issue?
Stay tuned for my next blog discussing the housing affordability issue.