Our current housing market is a seller’s dream. Low inventory has given sellers the opportunity to force buyers into bidding wars. With the surplus buyers, sellers are able to pick and choose between offers, often settling on the highest bid. However, as desirable as this current market is for sellers, it won’t last forever.
According to Robert Shiller, creator of the Case Shiller House Price Index, our current housing market is experiencing an “abnormal economy.” To be specific, every month, the Federal Reserve is purchasing upwards of $40 billion worth of mortgage securities and $45 billion worth of Treasury. Because of this activity, mortgage rates across the country have plummeted to record lows.
Currently, average rates for a 30-year fixed rate mortgage is 3.4% and 2.61% for a 15-year fixed rate mortgage. Of course, once the Federal Reserve stops purchasing these securities, which it inevitably will, mortgage rates will once again increase.
In our current market, the largest home price increases are occurring amongst multifamily establishments, indicating a transfer from home ownership to renting. Rather than purchasing a home to live in, many investors are instead purchasing homes to rent and make a profit from. Boulder is a perfect example, as 51% of the real estate market is devoted to rental homes here.
Aside from record low mortgage rates, our current market is experiencing other changes as well. For instance, there has been an
increase in demand for homes in urban areas and their surrounding suburban neighborhoods. This is largely due to current gas prices and the fact that people no longer want to commute long distances to and from work.
Now, Shiller predicts that in 10 years, the housing market will be roughly the same as it is now. While his predictions are most likely correct, there are other upcoming trends worth mentioning. In the next few years, certain locations and property types will prosper more than others.
• Desirable areas, such as Boulder, will experience a faster rate of appreciation than other housing areas due to the increasing mobility of people and capital.
• Low maintenance living will increase in popularity, and thus, demand.
• Self-sustaining and energy efficient homes will see a huge increase in demand.
Market Predictions for the next Decade
Buyers and sellers can expect another year to year and a half of high market activity. As builders bring new products to the market, inventory will rise, pulling us out of a sellers market and into a more neutral zone. With luck, owners will see prices rise to what we were experiencing in 2006 and 2007. Although they are at a record low right now, rates will eventually rise, and the market will be forced to cool down.
As with every market, there are ups and downs. Right now, sellers are reaping the benefits of these low mortgage rates and pitting buyers against each other. Sellers should soak it in while it lasts, because in the next few years, the market will most likely balance itself out, taking the power away from sellers.
The future holds a slew of changes for the housing market. New trends in housing preferences will bring about a demand for urban, eco-friendly living, and a demand in urban housing. With our desirable location and love for all things earth-friendly, the Boulder housing market in particular should see a flurry of activity.