The latest Boston area real estate news indicates recent employment gains could improve the price recovery of luxury homes on the market. During the first quarter of 2016, unexpected stock market volatility caused a decrease in luxury home values. Prices were able to recover slightly during the second quarter with an increase of nearly 1%, according to a nationally recognized real estate data firm. Luxury homes are typically defined as being in the top 5% of the highest-priced homes sold in each American city. Let’s look at the impact the recent job market improvement may have on luxury home prices.
Help For Luxury Homes? Boston Area Real Estate News
The U.S. stock market took quite a tumble in June with the Brexit vote and the resulting repercussions throughout world markets. However, it’s rebounded considerably since that time and recent employment numbers are likely to boost the stock market even more. Economists expect the employment growth to aid the recovery in luxury home prices.
With this recent Boston area real estate news, analysts say the higher, luxury end of the housing spectrum is more sensitive to changes in the stock market. The reason is that homebuyers with higher net worths and incomes are likely to have more money invested in various equities than middle America. Some economists say the housing market, in general, can adjust and adapt to even large spikes or dips in the stock market. However, they say, there are some markets – especially those in high-value real estate areas – where volatility in the stock market has a very direct correlation to the luxury housing market. In those markets, what happens in the stock market is more closely tied to real estate transactions because homebuyers in that income segment rely heavily on market activity to produce down payments and other liquid investments. Plus, there’s often a resulting sensitivity from foreign buyers who would otherwise invest in high-end real estate. Global volatility and its effects on the U.S. stock market curb – at least temporarily – their interest in purchasing luxury homes in some major cities.
The improvement in the jobs report, some analysts believe, will make it more likely the Federal Reserve will raise interest rates during the year. While not directly tied to mortgage interest rates, a hike in the fed funds rate may signal an end to record-low mortgage rates. Despite the seemingly negative impact such an increase may have on most homebuyers, a mortgage rate increase will probably not affect buyers in the luxury home market. In the words of one real estate professional, “Luxury (home) buyers aren’t motivated by mortgage rates. As evidence, luxury home prices were sluggish in the second quarter even though rates were near rock bottom levels.” Real estate agents and economists alike say what matters the most to buyers in the luxury market is a solid investment opportunity that is likely to pay higher returns in the future – much like their investment philosophy in the stock market. So, if the employment results do spur growth in the economy, there could likely be an improvement in the luxury housing market, regardless of what happens to interest rates.
Regarding the Federal Reserve, some economists maintain there will be no increase in interest rates for the remainder of 2016. In addition, some feel that bond yields – to which mortgage interest rates are more closely tied – may move downward as a result of several other global market factors. One respected economist said, “Rate hike odds by year-end shifted from 32% to 40% after (the recent) jobs number.” That would mean the likelihood of the Fed increasing short-term rates would still lean in favor of that not happening.
Of course, the luxury housing market – like its counterpart at other points in the buying spectrum – still suffers from a lower than normal inventory. However, if higher prices return, investors and homeowners are more likely to put their homes on the market – especially if the stock market continues its return to normal levels – allowing them the opportunity to use those additional earnings to purchase newer or larger homes.
The unknown factor that could affect luxury prices is the upcoming presidential election. With that event occurring in the fall – coinciding with the normal housing market shift that post-spring and summer bring – there could be a leveling off of luxury home prices. Interestingly, however, politics overseas may increase luxury prices in some U.S. markets traditionally popular to foreign investors. Real estate analysts point to Miami Beach, Florida, for example, where luxury home prices rose roughly 22% during the spring quarter.
Economists and political pundits alike continue to debate what effect the U.S. presidential election results will have on the housing market in general. If history is any indication, little impact is expected for several months after the presidential election. Either candidate, including those that may be reelected or replaced in upcoming Congressional races, will individually or collectively need time to assess and change economic policies. While we will all likely keep an eye on Boston area real estate news on a regular basis, most analysts say the greatest likelihood for the real estate markets to be affected will lie in the hands of the American public and the perception that a win by either party will make a difference in their financial future. In short, human nature takes over and prospective home purchasers who are optimistic about the country’s economy will likely be bullish on home ownership – if the price is right – while those with a more pessimistic opinion will likely be more cautious until economic conditions improve.
The bottom line is the real Boston area real estate news is that it remains to be seen how the recent job gains and the November election will affect the housing market.
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