What does the future hold? There are several issues that could impact the real estate industry.
(1) The federal government is proposing reducing their bond purchases. Just the threat of this has caused 10 year bond yields to go up which tends to drive up mortgage rates.
(2) The federal government is also contemplating what to do with Fannie Mae and Freddy Mac, the government-sponsored entity (GSE) mortgage guarantors that the government had to bail out to keep solvent. These GSE's could be privatized with banks and other mortgage originators taking more of a risk in mortgage losses. This would likely further drive up the costs of obtaining a mortgage.
(3) Past home-owners who lost their homes to foreclosure or short sale are beginning to re-enter the market as potential home-buyers, this will drive up demand and further drive down supply.
(4) Home investment companies have blossomed over the past year. Most homes for sale are seeing at least one, if not several offers to purchase from out-of-state corporations that are buying thousands of homes to build their rental portfolios. This will also potentially drive down supply.
Summary
As the economy rights itself and employment continues to improve, people will return to home-ownership as a historic cornerstone of personal stability and wealth-building. Price appreciation is expected to be around 4-6% over the next 12 months due to the resulting increasing sales. This appreciation will bring homeowners that are currently unable to sell their homes back above water which will allow inventory to increase and the real estate market to continue its recovery. All this could be impacted by the feds moves which drive up interest rates but as long as interest rates remain below approximately 6%, the housing market should remain healthy and stable.
Special thank-you to the Minneapolis Area Association of Realtors:
Data and graphics are courtesy of the Minneapolis Area Association of Realtors
