What’s Driving Real Estate?

Filed under: Market Comentary

Last week, Walter Neil (CEO of Franklin Loan Center), put on a presentation about the real estate market where he talked about what’s driving the industry right now. Today, I want to pass along a few nuggets that I thought were super interesting and compelling.

2 Factors Driving the Real Estate Market

In his presentation, Walter shared details about the things that are driving this market. Why is the market going crazy in the midst of the Coronavirus?

  • Interest Rates: Interest rates are driving affordability up. Even with the higher cost of property right now, interest rates make it cheaper to buy. Remember, a 1% decrease in interest rates equals a 10% increase in your purchasing power. We’re not seeing a 10% increase in housing prices yet, so we are seeing affordability go up. That’s the power of interest rates.
  • Lack of Inventory: An interesting point about the lack of inventory: it’s not about a lack of houses coming on the market. Year over year, the number of houses being sold is up. But it’s that houses are selling so fast.

It bears asking: are we heading for a crash? None of us knows what will happen with the economy. I think there is real economic pain that needs to come out of all the shutdowns – so I don’t see how we are going to come out of this elegantly.

But I do believe that housing will continue to be a bright spot. It’s largely based on the fact that the underwriting process is thorough. Plus, people have a lot of equity right now. Even if you did get in trouble and started falling behind on mortgage payments, you can just sell the house.

I have a hard time seeing where we are going to get a big glut in inventory because people start losing their houses. I’m cautiously optimistic about housing.

Will the Election Impact Real Estate?

Interestingly, if you look at history, the markets have a more muted reaction than we give it credit. We turn so much attention to the elections as if it’s going to make a big difference. You never know, but historically speaking it’s really not as big of a deal as we make it out to be.

Even though it’s counter-intuitive, everything points to ongoing strength in the housing market. If you have questions or want to run the numbers for your loan, I’m always here to help. Call, text, or message me any time for a conversation.

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