I just got through reading another article regarding the rising rental rates and falling vacanicies. Reis Inc. reports that, in the second quarter, rents rose in 80 of 82 markets surveyed and average effective rent was up 2.3%.
I believe that there are three major contributing factors that can prominently affect a positive movement in the real estate market in the near future. The first factor is the rental market. When rental rates rise far enough to compete with mortgage payments, qualified buyers start to contemplate buying vs. renting.
The second factor that will aid the cause to recovery comes in the form of creative AND safe mortgage products. For instance, if buyers are smart enough to take advantage of 3, 5 or 7 years ARMs, by utilizing the differential in payment from a higher interest product, to pay down debt overthe course of the adjustable period, that use of discipline will enable them to afford the higher payment when the rate resets at the end of the adjustable term. We all know that refinancing is always an option, but history has taught us that real estate does not always appreciate (as our grandparents tried to tell us!).
The third factor would be the welcoming of higher interest rates. Now, I'm not talking late 80's crazy double digit rates. Just a minor bump and threat that rates will rise and buyers will start to seriously think about getting in before rates get "too high."
The combination of all three of these could produce the perfect storm and create a sense of urgency for buyers to "get off of the fance" and get "back in the game." Couple this with concepts like rate and term mortgage modifications and principal forbearance, currently proposed by Mortgage Bankers Association President David Stevens, and we might just be onto something.
Oh my God, did I just voice an optimistic opinion about the state of our horrible real estate market. I think I did.
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