When it comes time to buy or sell your house, or if you work in real estate you get entangled in marketing or looking at homes ignoring the bigger economic picture that affects the real estate market. We tend to look at the local economy and what is impacting the prices in our own neck of the woods. But real estate and the economy are more closely intertwined than we think. The factors that affect housing prices can include the global economy, taxes, the job market and of course the interest rates. Let’s have a closer look at how everything ties together.
Mortgage rates in the past couple of years have been at an overall low, their lowest point being about two years ago. While today they could still be considered low, any time the Federal Reserve announce they are planning to hike the interest rate it impacts the average person looking to secure a mortgage. While half a percentage point may not seem like much but it does change the amount of your monthly payment. For some it could mean the difference between getting a mortgage or not. It can also affect the price, the higher the rate the lower the housing price.
Taxes are a part of your monthly carrying charges, lower taxes mean lower monthly payments. Taxes are more of a local issue as the difference in taxes between one municipality and another can be huge. There are some exceptions, last year’s changes to the federal tax codes had a big impact on market where the taxes are higher, states like California, Massachusetts and New York. Capping the federal tax deduction has the potential to drastically impact these markets.
The Job Market
Does the average home buyer feel they have job security? What is the unemployment rate? Is the median income increasing or in decline? The better the job market is the more likely people are to qualify for and purchase homes. The job market can vary from one part of the country to another to a degree but when the US job market is healthy so is the housing market.
The Global Economy
Economies all over the world are connected now, what happens in Beijing can impact what goes on in Kansas. World news can impact the stock market which in turn affects the housing markets. The more confidence people have in the markets the more inclined to make purchases and that includes buying a new house.
While most of us do watch the news and stay current on world events we may not understand how it directly impacts our everyday life.