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According to Real Capital Analytics, all domestic transactions were up up 49 percent by the end of Q1 2015. You don’t have to be a market expert to understand that that is a huge figure. Why is the home market doing so well? And will that trend last?
Why Is This Happening?
The country’s recovery from the late-2000s economic recession has been slow. Really slow. But that slowness is actually a reason why the real estate market is doing well. In fact, Andrew Nelson, Colliers International’s chief economist, says that this economy is “about as good as it gets” for residential real estate.
He’s not wrong. In simple terms, the economy is good enough to drive improvements in property fundamentals, but still hasn’t exploded yet to the point of overbuilding — or worse, lack of demand. This report confirms that, indeed, the real estate market is growing and responding to the country’s regained economic freedom, albeit carefully.
Recently, home builder confidence is at an all time high. A good chunk of that can be explained by statistics from the U.S. Department of Labor, who reported that 280,000 jobs were added in May. More jobs in construction means that more deals can go through. We know that mortgage rates are holding steady at 4.08 percent over 30 years, well below the five-year 6.06 percent average from 2007.
So on the actual property construction front, we’re looking good. But buyer confidence has a huge role in the actual home transaction figures from Real Capital Analytics. Fortunately, the stats back up the country’s growing confidence in the home property market. According to Realtor.org, 60 percent of registered Realtors closed a sale in Q1, and overall sales volume rose 11 percent from last year. We’re getting bolder, too: estimated average transactions increased from $1.6 million in last year’s Q1 to $1.7 million in Q1 2015, and sales prices increased 4 percent in that same time.
Still, though these figures are certainly encouraging, it’s important to keep perspective. Although apartment transactions did increase up to 68% over the same period last year, representatives note that apartment sales “experienced declines from their Q4 2014 levels.” Still, those final sales figures of $33.5 billion mean that some things are definitely working.
Will It Last?
As usual, the answer might be that “it’s tough to say.” One of the main takeaways from the Colliers report notes that the interest rate trends on all long-term transactions are susceptible to change. The report notes that “Wall Street attempted to handicap the timing and magnitude of the first post-recession increase in the Federal Funds Rate.” Not knowing things is never good, but since when has Wall Street ever been 100 percent sure of anything?
Andrew Nelson notes that the financial recovery from 2007 is the slowest since the WWII era. However, take comfort in the stability of the current market, and the growing enthusiasm of both buyers and suppliers in the real estate market. Chances are, things will only get better from here.