RISMedia's Real Estate Magazine

OCT 2018

Real Estate magazine is the industry's leading source for real estate news and information since 1980. Published monthly by RISMedia, Real Estate magazine offers timely and relevant real estate news to the industry's top brokers and agents.

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78 October 2018 RISMedia's REAL ESTATE While rates have increased in the last six months (at press time), im- pacting affordability, the rise is not significant according to historical trends, says Mark Boud, chief econo- mist and senior vice president at Me- trostudy, a provider of primary and secondary market information to the housing and residential construction industries. In the long term, Boud predicts mortgage interest rates will top out at 5.8 percent in 2020 and 2021, eventually being pulled down by slower economic growth—and because of tighter lending practices, the market environment will not be - come as dire as the last housing bubble. As for inventory, it is significantly under-supplied, while homes are in- creasingly overvalued; however, the risk of a price collapse is small due to the tight market, and Boud expects the cycle of under-supply to plateau in 2020. The lack of new inventory is, in part, in response to trade in - creases, as many of the imposed tar- iffs—specifically the 20-plus percent tariff on lumber imports, and 10 and 25 percent tariffs on aluminum and steel imports, respectively—directly impact construction efforts. These factors could lead to an in- crease in overall construction time- lines, as well as an increase in con- struction costs by at least $2,000 per house, according to Boud. More homes in the upper price ranges are being built, while inventory under $400,000 is lower, in some cases. Overall, the national market is be- coming top-heavy, which typically only occurs where land is more ex- pensive, such as in California, says Boud. Remodeling activity continues to rise in response to homeowners staying in their homes longer, as well as the continuing trend toward pur- chasing existing homes, which trig- gers renovations. According to Boud, this is most common in coastal mar- kets, or markets that have high ap- preciation rates, such as Texas. Something to watch? Inflation. Boud says inflationary pressures are slowly building—inflation rose from 2.4 percent in March to 2.9 percent in August—but in a few years, the national debt could slow economic growth, which, in turn, could slow down rising interest rates. Another concern? The current downward trend of the 2-10 Treasury yield spread, which could see nega - tive figures in about a year, may be a sign that a recession is in the cards. However, the current economy is healthy, says Boud. In the past 12 months, 2.4 million jobs have been generated, increasing demand for housing and pushing the unemploy- ment rate down. Additionally, hous- ing starts are fairly stable, forecast- ed to be 1.28 million in 2018, and increasing to 1.33 million in 2019 and 1.345 million in 2020, before plateauing. RE Liz Dominguez is RISMedia's as- sociate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. Housing in 2020: Construction Costs Grow, Mortgage Rates Slow by Liz Dominguez W here will housing be in 2020? According to recent Metrostudy predictions, if all continues on its current track, construction costs could continue to increase, and mortgage rates could reel in.

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