While it may take a few months for trends to be established and the word conveyed to the general population, it is now in the minds of most people that are paying particular attention to the housing market that the market is strong and has been for the past few months/years. People who I run into never fail to remind me that real estate is going strong and I’m delighted that people realize this. It is interesting to note however that home ownership rates are at an all-time low since we started keeping track in the mid ‘60’s and have been declining the past few months even though the market has been heating up. There are a few reasons as to why this exists, particularly on a national level, and I’ll save the most important for last.
First off we have the fact that the rental market is also very strong and there is a huge need for rentals which is watering down this number. This segment of the population is growing fast which may, in the near future, continue to add fuel to an already growing housing fire once these renters look for more of a private lifestyle as well as a personal investment. It’s always better to pay for your own investment than your landlords.
Secondly, housing prices are rising faster than incomes so affordability is becoming a deterrent for first-time home buyers. Around the St. Cloud metro area we aren’t really experiencing such a dilemma as in most local markets, one can purchase an entry-level home for less than what a comparable home would be if one were to rent it. Nationally however this is not the case. There are good homes, especially in the St. Cloud area, that are on the market for less than $125,000.00 which equates to a monthly payment of less than $850 which would be far less than what it would cost to rent a similar home (depending on taxes/insurance/type of loan for said property).
Third is the overall lack of inventory or more importantly descent, constructurally-sound (not sure if that’s even a word but I’m using it) homes. This is very evident in the entry level home range of those listed for less than $130,000.00. I’ve been in some homes between 100k and 130k that aren’t worth even close to what the Sellers are asking only to tour the next home that looks like a screaming deal compared to the previous and so it is really important to either study the market before buying and/or get a real estate professional on your side that actually cares enough to show you and help you understand the differences.
I could mention a few other minor points but I’ll leave it at this one last major point and that is interest rates and the game that is being played. While I am not a real estate attorney and therefore cannot give ‘legal’ advice, and while I cannot go into ‘every’ aspect that affects rates, I will give my opinion on what I consider the most important aspect of the market. As it relates to us as Buyers, rates will probably not move too much higher in the near term nor have they risen much over the past eight years even though some economists have been preaching that they would. For one, rising rates will certainly not help the affordability aspect of the ownership rate. Also, since we live in a debt-based system and since the majority of the population lives paycheck to paycheck, I think it’s important to consider that if the housing market is a driving factor in the overall economic growth and health of our economy, then it stands to reason that if rates do rise by more than 150 basis points (or 1.5%) then what will more than likely happen is the values of homes will have to fall accordingly. I believe this is the main reason why rates have not risen to the levels they should be at. 70% of our economy is consumption driven meaning we have to consume/spend to grow and so if rates rise to the point where people stop consuming and since the average household has very little to invest, we enter into an environment that leads to poor economic health and we’ve been fighting this fight for a very long time.
The point being is if you’re a Seller, now is a great time to sell since inventory is low and if you’re a Buyer, homes are still affordable and rates are still low. Whether a Buyer or Seller, betting on the future is probably not the best option since only the FED has an indication of what the future holds. All I know is that here locally Sellers are in a good position to sell and Buyers are still in a good position to buy. All else is speculation.
Feel free to contact me if you have any questions. I’m more than happy to talk real estate!
Author:Patrick Torgrimson Phone: 320-260-8008 Dated: January 17th 2017 Views: 298 About Patrick: My objective is simple; to do for you what I would wish someone in the same position to do for me wh...
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