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18
High Demand for Affordable Housing
We continue to have a bifurcated market with strong demand for and low inventory of affordable homes for sale, but low demand for and abundant inventory of expensive homes for sale. Recall that fewer than 4 months of inventory is a seller's market, 4-6 months is balanced, and greater than 6 months of inventory is a buyer's market. Below is a sampling of our markets:
| Area | Months of Inventory | |
| Cedar Rapids Area | ||
| Below $350,000 | 4.5 | |
| Above $350,000 | 8.8 | |
| Dubuque Area | ||
| Below $350,000 | 3.7 | |
| Above $350,000 | 14.2 | |
| Illinois Quad Cities | ||
| Below $300,000 | 4.6 | |
| Above $300,000 | 20.7 | |
| Iowa Quad Cities | ||
| Below $450,000 | 3.2 | |
| Above $450,000 | 16.5 | |
| Iowa City Area | ||
| Below $350,000 | 5.2 | |
| Above $350,000 | 9.8 | |
So the market is still very active in our affordable price ranges and we need more inventory. But the market is slower in the upper price ranges and generally a buyer's market. This means the timing is perfect for sellers in affordable homes to sell and to buy that pricier home they always wanted. Affordable Homes Appreciating Appreciation in home values follows inventory and demand. The chart on page 4 shows appreciation in our various markets over the past 12 months and the past 5 years; note that this is the average for all properties. Less expensive homes are appreciating faster due to strong demand and low inventory, while more expensive homes are appreciating less, and some not at all, due to excess inventory and low demand. Market Slowing Down The first three quarters of 2016 have been great in our region, see the Regional Activity Chart on page 2 for data on sales growth compared to last year in eight of our markets and decline in four of our markets. According to Lawrence Yun, Chief Economist for National Association of Realtors (NAR), "healthy labor markets in most of the country should be creating a sustained demand for home purchases. However, there's no question that after peaking in June, sales in a majority of the country have inched backwards because inventory isn't picking up to tame price growth and replace what's being quickly sold." Lack of inventory in homes under $300,000 has slowed down our markets. According to NAR, pending home sales are down 1.7% in the Midwest compared to last year. We also think this fall's crazy presidential election has caused uncertainty and pause, especially among prospective purchasers of our luxury homes. The Good News – Mortgage Rates On October 13, mortgage rates with zero points were:
| 30-year fixed | 3.5% |
| 15-year fixed | 2.75% |
| FHA/VA 30-year fixed | 3.25% |
| 5/1 ARM | 2.75% |
According to the Chief Economist for Freddie Mac, Sean Becketti, "the housing market remains a bright spot for the U.S. economy, with solid job gains and low mortgage interest rates sustaining the economy's momentum in September." "In most markets, low mortgage rates have more than offset the rise in house prices, preserving homebuyer affordability for the typical household," continued Becketti. "Homeowners are also taking advantage of low rates and house price appreciation that is increasing their home equity." Economists from Fannie Mae, Freddie Mac, NAR and Mortgage Bankers Association (MBA) all project rates to increase in 2017. The average of their respective projections is 3.68% in the first quarter up to 3.93% in the third quarter. If this happens, then buyers have more reason to buy now while rates are still amazingly low. If you're ready to upgrade to your dream home, contact a Ruhl&Ruhl Realtor. Visit us at Ruhlhomes.com or call us at 866-441-1776.
