Macro, Micro and the Real Estate Market

Understanding key economic factors affecting the real estate market in 2018.

A web of interdependent macro and micro economic factors influence the real estate industry and are key considerations in evaluating the nation’s financial health. Microeconomics examines small scale consumer behaviors (e.g., supply and demand) collectively influencing more complex macroeconomic issues like Gross Domestic Product (GDP) and interest rates.

Ideally, macro and micro strike a balance. Theory assumes certain factors will remain constant; therefore solving for ‘x’ is possible. In reality, these factors are in constant flux and macroeconomic policy is particularly difficult to manage. Policy complications aside, and stated obviously, an informed decision based on probability typically results in a better outcome than one made in haste.

The following economic metrics impact real estate and offer important insights for home buyers and sellers. Couple this data with the support and resources of an experienced Realtor and gain the advantage in an increasingly competitive market.

Mortgage interest.

Yes, rates are edging up and many industry experts predict additional increases, averaging around 5 percent, in the near future. Home buyers shouldn’t agonize over nominal increases just yet – five percent is historically low and doesn’t result in much higher month-to-month mortgage payments.

Why it matters: Increased borrowing costs, combined with current low inventory and rising home prices, forfeit buyers’ purchasing power. Finding the right home can be taxing and buyers often face competition when submitting an offer.

Builder confidence.

“Builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations,”

said Randy Noel, chairman of the National Association of Home Builders. NAHB conducts a monthly survey to derive the NAHB/Wells Fargo Housing Market Index from a number of data points. Builder confidence was last reported at 67 percent (50 percent is the lower limit for growth).

Why it matters: Current demand is encouraging home builders to negate a percentage of low inventory with a supply of new construction homes. However, the construction industry is facing rising costs that will inevitably reach the consumer and potentially affect housing affordability.

GDP.

The U.S. is realizing its strongest GDP growth in years and expected to close out 2018 at 3 percent.

Why it matters: A combination of record low unemployment, increasing incomes and strong consumer spending behavior is fueling expansion.

Consumer confidence.

Sentiment rose slightly in July, showing fairly strong optimism.

Why it matters: Confident consumers, experiencing job security and increasing incomes, are more likely to make real estate investments. Although the National Association of Realtors’ affordability index has declined to 134.8 since January, the average family income can afford an average-priced home – for now. Low-supply, high-demand environments may cause buyers in more expensive areas to be priced out if current trends continue.

Novice and veteran home buyers and sellers alike may find it tricky to navigate the current economic waters. The LizLuke Team will work with you to better understand these hefty topics – providing clients with excellent guidance, backed by exceptional expertise, in order to make sound real estate decisions.