Rising Rates -- Good News?
Several articles debating the effect of higher interest rates upon the economy have appeared in major periodicals in the past few weeks. The majority of them come to the conclusion that the recent rise in rates represents good news. Not because the higher rates will help the economy. But because of the fact that rates have risen because the economy is doing better. Or at least the threat of a double dip recession has faded from memory. One must remember that it was the threat of things going sour again which caused rates to dive down into uncharted waters. We accept this conclusion; however from this debate arise two additional questions. First, are Americans better off because rates have risen? Our answer is yes -- with a caveat. Americans who own a home and/or stocks are better off because these assets have gone up in value due to the better economy.
For Americans without a home, rising rates might make the recent bargains on real estate a distant memory. Which brings up the second question. Will rates continue to rise? At today's rates, home ownership is still a bargain and stocks are a much better place to invest as compared to yields on interest rate bearing instruments such as bank accounts. If rates continue to rise, this equation could change. We would have to predict the future to answer the question -- and we don't have that power. Friday's employment report showed 175,000 jobs created with a slight increase in the unemployment rate. This gives us not much of a clue as to the direction of rates because the report was "middle of the road." However, we will say that perspectives have changed significantly over the past three years. Three years ago, 175,000 jobs created would have been considered good news.
As consumer confidence, the economy, and job market all make gains, more Americans are feeling like they have money to spend on second residences and summer homes. Low rates are still a big draw as well. Vacation home sales increased 10 percent nationwide in 2012, according to the National Association of REALTORS®. Real estate professionals are also reporting sales have been strong this spring in many vacation home hot spots. "A lot of buyers who were sitting on the sidelines decided last year was probably a good time to take advantage of buying a vacation home," says Paul Bishop, NAR’s vice president of research. "They were feeling pretty good about their own financial situation, given the growth in the market and in the economy." In vacation home hot spots like the Hamptons, home prices are “roaring back” and rentals are fully booked for the season, CNBC reports. "We've seen bidding wars in the four to five million dollar range as well as in the overall market," Laura Nigro, a real estate broker in Bridgehampton, N.Y., told CNBC. "It's so much better than when the 2008, 2009 economy shrank and people were very much afraid to invest in anything.” Mostly fueling the demand for vacation homes in the Hamptons has been buyers from China, Nigro says. After super storm Sandy struck the coast last year, more buyers are evaluating the FEMA flood requirements more closely and coastal erosion zones before buying, real estate professionals report. But the storms of the past aren’t appearing to dampen their willingness to buy. Source: CNBC
In a housing market characterized by a short supply of properties and by bidding wars, some buyers are hoping to get a competitive edge by writing sellers short notes about why they fell in love with a home and want to become its new owners. Michael Citron, an agent in Florida's Broward and Palm Beach counties, says, "Money talks, but a letter gives a human element to an offer. Sellers want to sell to a buyer who they're comfortable with and can relate to." Although finding the right buyer can make people feel better about selling their home, experts say these letters will do little to help a buyer's case if the offer is significantly lower than competing bids. Moreover, lenders care little about such letters and only want the highest price and earliest closing possible. Source: South Florida Sun-Sentinel
Americans who are between the ages of 18 and 34 — known as Generation Y — could be a “game changer” in the U.S. real estate market, according to Urban Land Institute. As such, ULI researchers are taking careful note of this generation’s preferences when it comes to homes. A new ULI survey of about 1,200 Millennials shows that 59 percent of those surveyed prefer a home in a neighborhood that has a variety of housing types. For example, 62 percent said they prefer mixed-use developments with shops, restaurants, and offices, and 52 percent say they like pedestrian-friendly neighborhoods. The survey also showed that 55 percent of Millennials said they want their home to be in close proximity to public transportation. ULI researchers also note that this generation is more likely than older generations to live in apartments and in downtown areas. Patrick Phillips, ULI’s chief executive, says he believes the Millennials represent a big change from other generations, in that this group will continue to prefer more compact, urban homes, even later in life. He says that will likely lead to more mixed-use development. “Over time, we’ll see a return to a more compact, metropolitan development pattern,” Phillips said. “We’ll see less sprawl at the edges ... the market preferring solutions that are closer in.” Source: The Wall Street Journal
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