Lawrence Yun of the National Association of Realtors (NAR) has recently upheld several reports from real estate watchdog agencies detailing the higher demand and lower sales in the real estate market of early 2016. As a result of the stratification of housing sectors, realtors expect to see fewer applications throughout the majority of the year. March 2016 interest rates will reflect this with lower interest loan rates, a trend that is in line with the findings of the NAR.
Why Is Housing Demand up with Fewer Applications?
Trying to apply stereotypical economic principles to real estate can be a frustrating enterprise. Housing demand does not necessarily coincide with the number of applications that are on the market. In March 2016, there were actually less applications as demand went up, and to understand why lower interest rates occurred in March 2016, this situation must be understood first.
A home naturally garners more demand the more luxurious that it is; however, the offers on a house tend to decrease as that home rises in value. People may come to the open house and realize that they cannot afford the house. They may also place a Hail Mary offer on an expensive house that is immediately rejected by the seller. In short, the best houses usually receive the least amount of offers, especially offers that are truly serious in nature.
This situation gets exacerbated when housing prices become more stratified. The rich houses get richer and rise in price, and the poor houses get poorer. Contrary to what many people may believe, only the top part of the economy truly recovered from the 2008 housing crisis. Government sponsored housing, low credit housing, and privately owned subsidized housing never rise at the same rate that the $750,000 beachfront condo does, but all property values tend to rise faster than income over time. Richer people have the ability to bid on both sets of properties, but the vast majority of would be homeowners lose ground in their ability to obtain housing. Because there is less competition in both sects of properties, you can actually have months with more housing purchases on top of less applications and lower housing starts. This is almost what happened in March 2016, but not quite.
Does the Geography Have Anything to Do with the Housing Demand?
According to the NAR, the West actually held the torch for the entire nation in terms of real estate purchases. The West went up 7.1 percent over February, and the rest of the nation actually lost around two percent. However, there were so many houses sold in the West that the US actually experienced a three percent rise in overall housing sales from February.
Generally, housing in the West is more expensive than housing in other parts of the country. Large metro areas such as San Diego, Los Angeles, Las Vegas, and San Francisco skew the landscape in favor of upscale housing on the Pacific coastline, and may explain the rise in housing demand. If you remove the West from the equation, then you see a reduction in housing demand and less applications, a scenario that makes much more sense.
Why Do Fewer Applications Mean More Demand in March 2016?
Considering that geography had a great deal to do with housing demand in March 2016, you should consider the application count in the rest of America outside of the West in order to figure out the reason for lower loan rates. Because the housing market in the rest of the United States went down two percent, you expect to see less applications put forward. Lower loan rates make more sense because bankers would need to implement that policy in order to reverse the low application trend.
Although data from real estate watchdog agencies is important, interpreting that data properly is the most important part of the process. Without knowing that the West was responsible for much of the housing growth in March 2016, many people would not be able to explain the lower amount of applications and lower loan rates in that month.
What Does This Mean for the Rest of the Year?
The rest of the year will probably see no reversal in the trend towards low housing starts and fewer applications year-over-year. Loan rates will continue to remain low as long as the Federal Reserve does not drastically change its policy within the year. Stratification between the levels of housing available on the market will also continue to increase, as the United States economy is not projected to improve much for working class and lower middle class people over the next year.
People who can afford all cash negotiations or mortgages without government assistance will probably get the best deals in the real estate market in 2016. Individuals who rely on government-sponsored entities will likely have more trouble as the year goes forward, even as loan rates remain low throughout the year.
2 Point Highlight
Government sponsored housing, low credit housing, and privately owned subsidized housing never rise at the same rate that the $750,000 beachfront condo does, but all property values tend to rise faster than income over time.
Without knowing that the West was responsible for much of the housing growth in March 2016, many people would not be able to explain the lower amount of applications and lower loan rates in that month.
