Home price growth slowed in October and the question that lingers is whether the recovery from the slump in pricing that began with the Great Recession in 2008-09, is coming to an end. This is an important consideration because price growth provides the accumulation of equity that typically allows homeowners to “trade up.” The cycle moves throughout the housing spectrum as then inventory for first time homebuyers becomes more plentiful, and the virtuous cycle progresses.
There are many factors that impact housing prices and the most common is employment and wage growth. As would be obvious to any homeowner/prospective homeowner, it is unlikely that someone would commit to a 30 year stream of mortgage payments if they were uncertain of their job prospects or wage trajectory. Those payments become more burdensome as interest rates rise, so interest rates are also a significant factor.
The latter issue – interest rates – is not burdensome as mortgage rates remain near generational lows. Employment, however, continues to be a sore spot in this economic recovery.
The drop in gasoline prices may be the hidden factor that impacts pricing of homes in the near term. Some fence sitting homebuyers may conclude that the savings from money formerly spent on gasoline, may be used to buttress a house payment.
Time will tell.
All comments or questions are welcomed.
Bob Bilkie, CFA®