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In many parts of the country, housing prices are continuing to increase at impressive rates–close to 20% per year. In really hot housing markets such as northern Idaho, the median price of houses doubled over a period of five years, and homeowners in other thriving areas of the country have seen similar increases.

That significant increase in home values is obviously welcome to people who bought in these regions some time ago, although it is making things tougher for those wanting to move into these areas now. And while demand is currently outpacing supply–which is keeping those house prices climbing–some homeowners are starting to get a little nervous: it feels a little bit too much like 2007-2008, when home prices were soaring . . . right before the entire housing market crashed.

But while there are some indications that the housing market may see a slow-down, homeowners can be reassured that the conditions which created financial problems in the housing market in the 2000’s are not at play. The financial side of the housing picture is nothing like what it was back then. Lenders are careful about whom they will lend to, and the availability of mortgage credit is about one-seventh of what it was during the “boom” of the early 2000’s that led to the crash.

Things to Watch

At the same time, that does not mean that we can assume everything is going along swimmingly. There are indications that the economy is facing issues that will affect the housing market, but market watchers are optimistic that the impacts will not have significant adverse impacts. 

One factor that affects housing is lending rates. To counter inflationary pressure, the Federal Reserve has increased interest rates in an attempt to limit the supply of money–that is, the supply of borrowed money. As a result, mortgage loans are not as cheap as they have been in recent years. While this does not affect cash buyers (of whom there are many), it does affect those who need to borrow to purchase a house. 

Another factor that has affected the housing market is the significant changes in the economy that were spurred by the Covid pandemic. As people started to work from home, and as the laws of the various states were changed in response to the pandemic, there was a great deal of migration within the United States. That movement, which created a flood of buyers in different markets, has largely abated, and real estate agents have seen decreased traffic since the peak in 2021.

Both of these factors are, in turn, prompting builders and developers to pull back a little. According to the NAHB (National Association of Home Builders), housing starts are starting to slow down even as real estate prices climb because developers are less confident that the market will remain high enough to justify investing in major new builds.

The caution that is causing a slow-down in housing starts, however, should actually shore up housing prices, as demand still continues to outstrip supply at present. So homeowners should see their values hold pretty steadily, as the different factors that affect housing prices balance themselves out.

Take Stock of Your Situation

With any type of investment, and especially when borrowing to purchase as large an investment as a house, borrowers need to take stock of their overall financial picture and assess whether any housing move they are contemplating makes financial sense. Housing is always an essential for everyone, so there will always be a demand. The question is how that demand will be filled.

Given all of these factors and others, it is more likely that buyers will be looking at different ways of financing their moves. While interest rates were at historic lows, 30-year and 15-year fixed-rate mortgages were very attractive, but now that rates are climbing, buyers may want to consider 3, 5, or 7-year adjustable rate mortgages in order to get a lower initial rate, in the hopes that they can refinance their loans at a low rate in the event interest rates will once again settle down in a few years.

At Portage Bank, one of the things we specialize in is finding ways to help people purchase homes. If you are looking for a trusted source for your mortgage loan, bridge loan, or equity loan, or if you want to refinance your existing home, contact Portage Bank today.

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