Last year, people seemed to disagree about whether or not the real estate market was heading towards a crash. On one end of the spectrum, researchers believed the labor market was going to expand and develop, which would increase the amount of buyers. On the other hand, experts discovered some underlying issues that are expected to worsen throughout 2017, and eventually burst the bubble. Here are a few of those reasons:
Take a look at any real estate market report and you’ll see an increase of market prices throughout 2016. In the beginning of 2016, market prices rose slowly and steadily. Suddenly, the second half of 2016 saw a sudden jump of prices, which have yet to balance out. While this pricing increase is attributed to various factors, one of the biggest influences is the lack of supply. Builders just aren’t cranking out as many houses as they used to.
Although we are expected to see a continual wage growth in major cities, there will still be a price mismatch between median income and affordable houses. Unfortunately, the only places that are seeing a jump in wages are also the only locations where houses are extremely expensive. Therefore, increased wages do nothing to benefit the real estate market. In fact, it actually does the opposite.
Increased Mortgage Rates
In June 2016, we saw a decrease in mortgage rates around the same time Britain initiated Brexit. But shortly after Donald Trump was elected, mortgage rates soared higher than they have been in the past few years. While current mortgage interest rates are around 4%, historic standards still consider this rate moderately low. Unfortunately, experts expect mortgage rates to hover around 4% and even increase as the year progresses.
Overall, lenders are continuing to tighten their requirements, standards, and conditions for housing loans. This means it will potential buyers are going to need better credit and more reliable income. And with 2017’s projected economic state, these standards might be unrealistic.