How Google and Facebook Have Hosted Articles Suggesting It’s the Best Time to Buy a House in America?
People who spend much time with Google or Facebook will see in 2018 there are plenty of ads out there to convince you that now is a smart time to buy a house. There is some evidence this is the case, of course. The economy is doing well, unemployment is low, and wages are increasing, albeit at a slow pace. Consumer confidence is also high.
But companies advertising on Facebook and Google in the housing and mortgage industry want you to think that everything is sunshine and rainbows and there is no reason under the sun to not buy a home today. Of course these advertisers, as well as Facebook and Google, want you to think this. They stand to make money when you buy a home and get a mortgage.
However, by perusing current news reports about housing and mortgages, you know that it might not be the time to buy a home for everyone. Affordable homes are harder to find today in many parts of the US. According to Trulia.com in 2018, the inventory of starter homes in the country is down almost by half compared to 2012, and prices have increased by 58%.
Consumers have been recovering from the Great Recession and the housing crisis over the last decade, which is good. More people became able to afford a home. But the existing supply of affordable homes has largely been taken in many popular US markets, and there now is a lack of affordable homes.
This situation does not look to improve any time soon. Recent surveys suggest that affordable home problems will continue through 2018 and into 2019. A Reuters poll of property market analysts found that home prices are expected to go up at almost double the rate of wages through this year. Home prices are believed to be poised to gain 5.7% more over the course of the next year. Average annual earnings growth will be 2.8%, which is a bit above the predicted inflation rate of 2.5%.
Further, wages are not keeping up with the increase in prices of houses. While they are starting to rise as unemployment is well below 4%, the pressure on employers to find more workers has not yet translated into higher wages to any great degree. Annual wage hikes are still below 3%.
It is possible that wage increases could hit 4% in 2019 but the Reuters poll predicts that home prices will still beat wage growth with a 4.3% rate of growth next year. The supply issue may ease somewhat in 2020 as home prices may increase by only 3.5%.
But the home price correction may be coming from the demand side and not the supply side. Housing starts are rising, but far too few are in the $250,000 and under range, which is the price range affordable to most Americans. Demand is high, but rising land and labor costs are making it harder for home developers to make profits building cheaper homes.
Rising prices are forcing buyers who were able to just qualify before, completely out of the housing market. This will probably lead to less demand in the future and may slow price growth.
Of course, another obstacle to a strong housing market that Google, and Facebook want you to believe is here is interest rates. Mortgage rates have risen dramatically in the last 18 months. At the beginning of 2017, it was possible to get a 30-year, conventional fixed mortgage at 3.5% or so. Today, rates for the same mortgage are approximately 4.75%. While this is still a low rate in historical terms, it is becoming harder for people to buy homes at these higher rates; a 1% increase in rates adds at least $200 or so to the average monthly mortgage cost.
The Federal Reserve is expected to raise rates more in 2018 and 2019; they just increased rates again this week. It is expected that mortgage rates will near 5% in the not too distant future, and this is probably going to put a damper on the housing market too, no matter what Facebook and Google and their housing/mortgage advertisers want you to believe.