You’ve probably noticed a few big changes in our country lately. We’re seeing a ripple effect in all sectors, and the housing market is no exception. Mortgage interest rates have increased, and housing prices are on the rise.
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It’s true: Housing prices are projected to rise by almost 5 percent in 2017, according to a 2016 Reuters poll of property market analysis.
Why are housing prices increasing?
Property value appreciation, which can cause housing prices to go up, may be related to several factors:
- Population growth can increase property demand and drive prices up.
- Inflation has an influence on land prices, not to mention the cost of permits, labor, and materials to build.
- A city that’s seen major changes that improve its livability may also see housing prices go up.
We see the perfect example in a state like Colorado. There, housing prices have more than doubled in the past five years, confirms real estate investor Mark Ferguson.
In CoreLogic’s U.S. Economic Outlook for 2016, the average American household was estimated to have gained more than $11,000 in home equity over the past year. This was mainly attributed to home value increases. Depending on where you live, you could see even bigger benefits from this home equity jump, occurring from 2015 to 2016 and expected to continue into 2017. A state like Texas saw an $11,000 home equity increase on average in just one year, compared to states like Colorado and Washington with $26,000 and $29,000 increases, respectively.
Colorado is just one example. Housing prices are rapidly increasing in many other states, just for the reasons we discussed. Your lender or your realtor can give you insight into how much housing prices have risen in your local area, if at all. In many parts of the U.S., inflation has made it more expensive to build, when it comes to pricing labor and materials. The quality of living remains high in some states — like Colorado, as our example state. This makes more people want to move there. As a result, many states are experiencing high demand with a low supply of houses available. And so, housing prices go up.
We can’t forget about mortgage interest rates and how they affect housing prices. When mortgage interest rates are low, as they were when they reached a record low of 3.36 percent in 2016, it makes it easier for people to buy. If you sign on for a home loan with a low interest rate, you may be able to afford a more expensive house. This drives demand up and pushes housing prices higher.
A mortgage rate increase can also reduce housing demand – though not necessarily prices – using the same push-and-pull principle. Giovanni Russonello of The New York Times writes, “As mortgage rates go up, people are a little less likely to buy a house, and those with fixed-rate mortgages are less likely to refinance (because they probably will not end up with a better deal).”
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The big benefit of rising housing prices no one’s talking about
At face value, home price increases seem pretty bad. If prices climb too quickly, the average homebuyer’s income may not be able to keep up. In this scenario, first-time homebuyers may have the hardest time buying a new house in this pricier market.
But for the homeowners, the tables are turned:
- If you’re thinking about selling your home and moving into another, this property value increase can give you extra buying leverage.
- Or, you could ride the wave of home equity increases to see how much your property value appreciates over time. Remember, housing prices have already risen, and they’re expected to increase another 5 percent across the U.S. in the next year.
At this point, you may feel like you’re sitting on a pot of gold — and you very well could be.
Confused about your mortgage? We put together a full glossary of mortgage terms to make things easier.
For many homeowners, this is the kind of news that can spur you to action. You might be ready to cash in your chips and take advantage of your home equity increase by buying that new house you’ve had your eye on. Even with a new-year jump, mortgage rates are still competitive, and the time may be right.
There’s only one way to find out: Talking to a mortgage lender can get you prequalified so that you know exactly how much you can afford to buy — taking into account your property price increase. Contact us today for a quick chat or plug your numbers into our free LoanFly app to get prequalified.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.