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3 reasons residential real estate continues to explode

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The price of residential real estate continues to explode across the country.

Financial expert Carl Carlson, CEO of Carlson Financial, gave some insight into what may be causing this.

He said according to a recent New York Times article, the median American home price rose by 20% in 2021 and added that there are three factors that seem to point towards the increase.

One is that the potential continuing increase in interest rates has many people scrambling to buy that new home before the interest rates - combined with rising home values - push the price too high and take them out of the market, Carlson said.

He believes it will continue the foreseeable future, saying the Fed is talking about increasing interest rates three to five times just this year alone.

“So, it does make sense that now is the time to get that home loan if you’re going to,” Carlson said.

When asking how much home loan rates are going to increase or how much have they gone up already, Carlson said as recently as 2020 you could have found a 30-year fixed rate loan as low as 2.5% and below.

Currently, that 30-year fixed rate loan is bouncing between 3.0% to 5.0%.

“It’s hard to say how much higher these rates will get, but I think it would be fairly safe to say an increase of another 2 to 3% or more over the next couple years wouldn’t be out of the question,” he added.

If someone is borrowing $400,000 to purchase a home, how big of a difference does this make? Carlson said the increase in the mortgage amount would be another $80,000 added to the loan and an interest rate from 2.5% going to 6.5% increases the monthly Principal & Interest payment from roughly $1,500 to $3,000 or a $1,500 a month increase for the same house, causing a major hit to the monthly budget.

Secondly, is the high increase in virtual/work from home jobs is allowing people from very expensive housing markets like New York to be able to move to smaller cities with much lower real estate prices and paying considerably more than the local market price, but still feeling like they are getting an “incredible” deal.

Third Carlson said is that corporate buyers like large REITS are getting way more heavily into this market by purchasing and renting the homes out, the large corporate buyers understand the shifting dynamics of rising interest rates and work from home and have access to lower cost funds to purchase the homes, many homes even being purchase through the use of algorithms and purchasing all electronically.

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