Our economy made the transition earlier this year to full recovery from the near economic collapse in 2008. The Federal Reserve and other economic policy makers have switched strategy from one meant to stoke growth to one meant to manage growth. In some ways, our economy is out on its own again for the first time in a long time, and we are all cautiously watching to see how it performs.

The economy has showed no significant proof that it is doing anything but driving on all cylinders. So the Federal Reserve committed to increasing its short-term interest rate back to close to pre-recession levels. With that news, mortgage interest rate-makers continued a steady increase this year before leveling off this summer at about 4.7 percent for a 30-year fixed conventional loan, according to MortgageNewsDaily. Since then, rates have sat relatively still.

While credit is indeed loosening and most U.S. companies are showing profits, economists and investors seem to be cautious. There are two things that are creating instability in their outlooks on future growth: a shortage of skilled labor and the potential for more tariffs. Investors are aggressive only when they feel comfortable in their understanding of where the economy is headed. With unemployment at historic lows, it’s hard to imagine exactly how U.S. companies will be able to produce more product and grow. It is also hard to understand exactly how the trade-wars and tariffs that are being talked about will impact each sector of our economy – so investors don’t know exactly where to invest.

Until we see a solution for increasing the productivity in our U.S. companies that doesn’t include hiring more employees, and until we see a decision on what tariffs will be implemented by our government on foreign imports, and then on other governments on our exports, investors could remain cautious. And mortgage interest rates will likely stay close to where they are.

If you are a homebuyer, the bigger concern should be with rising home values. The problem of having a historically low unemployment rate means it’s very hard to find enough skilled labor to build enough houses to meet current demand.

While we are averaging close to 90,000 people a year moving to the Atlanta Metro area, we are only averaging close to around 20,000 new-home starts a year. And a very high percentage of those new homes are in the $400,000+ price-range. Areas close to and inside the perimeter are largely built-out, and there are very few large swaths of undeveloped properties. So builders are paying more for smaller properties. And because of the labor shortage, they are having to pay more for skilled labor. This is making it very hard to build houses under $400,000 and still make a profit. As such, inventory levels in the under $400,000-market are at historic lows.

This market is extremely competitive with good deals going under contract less than a week after being listed. Buyers in this market are having to compete against multiple offers and agents are listing houses at prices that are as high as they think they will appraise for – and sometimes much higher.

Homebuyers in this market are forced to be aggressive, offering list price and short closing periods. To say it is a seller’s market is putting it mildly.

This competition is driving up home values by as much as 5 to 10 percent a year in some markets. This means if you are buying a $350,00 house and decide to wait, this same time next year you likely will pay between $17,500 $35,000 more. In terms of a monthly mortgage payment, that could mean paying between $80 and $170 more.

As we get used to this new economy, it will be interesting to see how all of this plays out. It is unlikely that homebuilders will find solutions for the labor shortage any time soon. And unless demand for housing stalls, we can expect home values to continue to rise over the next several years.


Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases. *The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group.

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