By S.E. Slack
Have you sold your house yet? If not, you may have missed your shot. Real estate firm Zillow states the economic forces driving existing home sales are in flux. And that could mean a serious slowdown in home sales through 2015.
According to Aaron Terrazas, economic research analyst for Zillow, the Federal Reserve has embarked on a measured retreat from its financial policies of recent years.
“Interest rates have (now) climbed from their historic lows,” says Terrazas. “These decisions were made in response to the expectation that economic growth and inflation are poised to strengthen in the near-term – contributing to higher wage growth, faster household formation and eventually to higher homeownership rates.”
As a result, Terrazas says, the underlying drivers of the housing market will approach a delicate handoff as a market driven by accommodative monetary policy gives way to one driven by macroeconomic fundamentals.
It’s a plausible outcome. Under a median price scenario, home sales are projected to fall off a bit from current levels over the next twelve months. At the same time, mortgage rates are rising. As they do, some homeowners might shrink back from selling because doing so would force them into a situation where they must purchase their new home at a higher interest rate.
Because monthly payments would be greater unless purchasing a much less expensive – and probably much smaller – home, many home sellers would be discouraged from selling. That hesitation is expected to limit the supply of available homes and contribute to slower home sales. Terrazas says this slowdown will be fairly prominent moving beyond fall 2015.
The problem will then trickle down to those looking for homes to rent. Whether in places like metro Chicago or suburban Riverside, Calif., where rents have traditionally been affordable for most incomes, rents will rise as the fewer homes hit the market.
Although renters in markets like this can typically begin to save money for a down payment on a home, any increase in rents could squeeze middle and lower-range buyers out of a purchase for many years.