Many of us, who are involved, on a daily basis, with the many nuances of real estate, get so involved with buying, selling, marketing, and promoting homes, and making/ giving listing presentation, we often ignore, the many economic factors and other conditions, which impact the real estate market. Some of these factors are local, in nature, while others may be national or international/ global. Some are actual, while others are perceived (for example, belief in their job security, negative possibilities because of some action taken by government, etc). With that in mind, this article will attempt to briefly consider, examine, review, and discuss, how the overall economy impacts the real estate/ housing markets.
1. Mortgage/ interest rates: When the Federal Reserve announces they are raising, planning to, or considering raising rates, in most instances, mortgage rates follow. About 2 years ago, we witnessed historically low mortgage rates, and today, while, from an historic perspective, they are still relatively low, they are about one percent higher, than they were, at the low. When mortgage rates are low, many buyers qualify for a higher price, and thus, we often witness a rice in home prices. As they rise, generally, prices, and, especially, the rate of increase, slows.
2. Taxes: When local real estate taxes are comparatively low, the effect on monthly carrying charges, is a positive, for the housing market. When they rise, they cause homeowners, to have to pay more monthly. Some houses, neighborhoods, regions, counties, etc, have lower taxes than others, so when one region abruptly raises rates, that local market is hurt, and certain surrounding areas benefit. In addition, in higher tax areas, such as New York, New Jersey, Connecticut. Massachusetts, Illinois, California, last year’s tax legislation, may have potential longer – term ramifications, on the housing market. That inclusion, known as State and Local Taxes, or SALT, limited/ capped the federal tax deduction, permitted, for state and local taxes, to a total of $10,000. Since many houses in these regions, have much higher taxes, and, several of these areas, also have state and/ or regional taxes, these caps, have the potential, to harm the real estate market, especially, if, they increase, any more.
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3. Jobs: Do people perceive, they have job security? Is the job market, strong, or relatively weak? Are incomes increasing? The more confident, and comfortable, qualified potential buyers, are, the stronger the market.
4. Overall economy, and world news: For example, if the present, partial government shutdown, continues, for a substantial period, many workers, industries, and small businesses, especially, will be negatively impacted! There seems to be lots of fears, doubts, and insecurities, about safety, etc. The more confident, the public is, the better off, usually, is the real estate market.