It is hard to tell if the housing market has really recovered from the economic downturn of 2007-2008. While there is clear evidence that it is doing well, a number of challenges and risks remain, especially in certain areas.
Following is an overview that can help investors know if pouring money in real estate is really their best option.
How and Where the Market is Heating Up
Statistics clearly show that single family home construction is one the rise. This is certainly good news for homeowners, real estate agents and real estate investors as a report from the National Association of Realtors explains that a lack of inventory is the main reason why the number of sales is lower than it could be.
Interest rates may be on the rise; however, this has not deterred potential homeowners from taking out a mortgage. In fact, home purchase activity is up by 3% this year, thanks in part to the fact that a low unemployment rate and a rise in hourly pay is making it possible for those who want to own a home to buy one. Foreclosures are at a 10-year low due to the fact that banks are not lending money to risky borrowers.
At the same time, it is important to note that the housing market is heating up at different levels in different states. California, Washington, Texas, Florida and the northeastern states are seeing dramatic rises in home value for a number of reasons. While lack of housing available in certain areas does play a role in rising values, the number of good jobs available in these areas has also contributed to a rise in property values. People tend to move to cities and states that have good jobs available, increasing demand for housing and pushing up median home values.
How and Where the Market is Facing Challenges
The housing market may be steadily returning to normal, but a number of challenges remain. Home construction is one the rise but still remains at historically low levels. The cost of housing materials is also growing, and many construction companies are having a hard time finding workers.
This makes it difficult if not impossible for those who want to buy a home to do so. First time homeowners are having a particularly hard time finding a house in their price range as a shortage of options pushes values up even further.
Many cities and states are seeing home values fall instead of rise. Parts of Illinois, New Jersey, Wisconsin and Connecticut are experiencing a significant decline in population that is pulling the retail market down as supply grows and demand decreases. A relatively high unemployment rate in states such as Arizona, Mississippi, Georgia, New Mexico and Louisiana has been at least partly responsible for the overall lack of growth in housing prices in these areas.
Furthermore, median home value in a number of cities has not risen to 2006-2007 levels. While this is not necessarily bad news for home buyers, it does put a financial strain on those who purchased housing a decade ago but are not unable to recoup their investment.
In New York, for example, only a quarter of all homes have regained the value they had a decade ago. In Las Vegas, the number of homes that regained their original value currently stands at a paltry 3%.
While home values are slowly but surely rising in a number of areas, it could be years before the housing market in large swaths of the United States is performing as well as it was before the economic downturn of 2008.
Despite the setbacks discussed above, investing in real estate is still a good option. Commodities are often safer than other investment opportunities, and there are many indications that housing prices will rise over the next few years.
Additionally, relatively low interest rates can make it possible to get a good mortgage deal that may not be available in the future. At the same time, investors will want to choose a local area and type of housing with care as some housing markets and sectors are set to perform far better than others.
Regards,
Ethan Warrick
Editor
Wealth Authority
