In the Lake Minnetonka housing market and others throughout the country, as spring approaches so does a feeling of optimism for many looking to buy. Historically, for a variety of reasons, the coming of spring signals the start of the housing market's activity. However, with home inventory at considerably lower levels than most real estate professionals would like to see them, a home search promises to be a challenging and lengthy task.
Inventory Low in Lake Minnetonka Housing Market
With the supply of homes on the market scarce, real estate experts expect demand to continue to rise. Home prices remain on the upswing – not as a result of rising incomes, but simply because of the age-old economic principles of supply and demand. Homes in short supply meet demand at its peak, resulting in a proverbial seller's market enjoying higher sales prices.
While prices continue to rise, some economists say the pace is slowing a bit. Still, the growth in home prices should encourage additional activity in new home construction. Aggregate housing starts have remained above the annual rate of 1 million starts per year for the past eleven months. In addition – and more importantly – single family housing starts have exceeded 700,000 units per year since June 2015. So, in spite of the lagging inventory of homes on the market, housing investment continues to be a positive factor in the growth of the gross domestic product of the U.S.
Homes in or near urban centers are expected to fare the best. The demand to be close to the city or metropolitan areas creates a veritable buying frenzy. Tight inventory will lead to multiple offers as prospective buyers look to purchase – often before the homes officially reach the marketplace.
The prognosis for some buyers isn't quite as rosy, however. Zillow Chief Economist Svenja Gudell says, "There are a lot of economic forces at work behind the scenes that will have a big impact on housing as we enter the busy home-shopping season. Low inventory is a factor in almost every market, so buyers should be prepared for a limited selection in the months to come.”
Some home buyers won't find exactly what they're looking for. Those home shoppers will be faced with an uneasy dilemma. Will they be forced to settle for something that doesn't meet their expectations or needs? Many buyers are hesitant to make a purchase for fear they may get stuck with a house they can't easily resell. In addition, they dread "buyer's remorse" that may set in once they realize they made a bad decision by buying something they really didn't fall in love with.
As a result, renting is always an option. Some prospective first-time buyers have put off buying for a variety of reasons. Chief among them are a lack of a sufficient down payment, fear of taking on additional debt on top of student loans, an ever-changing job market and rising home prices. Plus, statistics have shown that younger buyers are less apt to buy "fixer uppers" at today's prices, primarily due to the cost involved to improve the property to meet their needs.
For those in the Lake Minnetonka housing market looking to buy but possibly deciding to rent until they find their dream home, they're faced with another dilemma: rising rents. The question many will have to ask themselves is, "Does it make better financial sense to buy or rent?" Most real estate analysts say that depends on the old adage of "location, location, location." In some markets throughout the U.S., homeowners can reach the break-even point in less than two years. What that means is home buyers can spend as much to own as to rent, taking into consideration mortgage rates, down payments and taxes. In pricier markets the break-even period may take longer – often between 4-5 years.
Some home buyers remain bullish on buying instead of renting – even though they may not find exactly what they want. They view home ownership as an investment, preferring to buy and hold the house as it appreciates in value. This segment of the Lake Minnetonka housing market is less likely to rent. They consider renting tantamount to throwing money away without building equity in an investment. And, with mortgage interest rates near record lows, buying probably makes better sense for many.
Other factors will impact the Lake Minnetonka housing market this spring. Global economic volatility continues to contribute to an ever-strengthening U.S. dollar. This will ultimately have an effect on demand from foreign purchasers, resulting in keeping interest rates low.
In addition, some U.S. economists warn that continued single-family residential investment as a major component of gross domestic product is worth watching and tracking. Historically, the investment component has been a high-ranking monetary indicator that tends to peak just before the beginning of economic recessions. This has been cited as a reason that some financial analysts point to a "mild to moderate" recession by the third quarter of 2016.
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