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Ask the Economist: The Election’s Short-Term Impact on Housing

skylarolsen_headshotSkylar Olsen joined Zillow in the summer of 2012. Her research is used by consumers, policy makers, and other researchers to understand real estate markets and make better decisions. While authoring works such as A House Divided – How Race Colors the Path to Homeownership and numerous other Zillow research projects, she also creates many of Zillow’s real estate indices and metrics, including the Buyer-Seller Index and the Buy-Rent Breakeven Horizon. Olsen also heads the economic research team at Zillow affiliate, StreetEasy, in New York. She holds a PhD in Economics from the University of Washington specializing in econometrics and environmental economics. Her academic work focused on using housing data to explore environmental issues. Prior to her work at Zillow, Olsen was honored for teaching excellence by the University of Washington.

Olsen spoke with DS News about housing trends that have quickly changed in the past few weeks, and election results may be the catalyst.

What trends have you seen in homebuying activity post-election?

From our point of view, at this stage, time will only tell. But when we do look at the things that we can observe over a short period of time, we have seen that mortgage rates have jumped up pretty quickly since the night before the election. They are actually up 40 basis point, almost to 4 percent, which is a big deal because for the longest time they had remained exceptionally low and we were all wondering when they were going to start going up. Turns out, they are starting to go up now as the international trust in our American market has waned because of uncertainty from our election results.

What do these shifts spell for the future of the housing market come 2017?

When we think about what the effect of higher mortgage rates maybe, it is going to be a particular problem in those areas where mortgage affordability is already a little worse than it's been historically. These are areas like San Francisco and San Jose where home values had increased so fast out of the trough that they are already above pre-recession peaks. High home values combined with interest rates going up is going to cause a scenario where mortgages are now more expensive than they historically have been. When we look at various metrics across the country, interest rates have to come up quite a bit until you get to that point, but for really expensive metros they are already at that point so mortgages will start to feel even more expensive and it will contribute again to home values slowing down. This is a bit reflected in the fact that our forecast over the next year also predicts home values to begin slowing down. We anticipate continued slowing of people reacting to the fact that now mortgages are more expensive.

What do these trends spell for homeownership? Will potential buyers be more or less interested in the market?

I think it really depends on where you are. Let's say I'm a potential homebuyer and I currently own my house. When there is uncertainty in the U.S. market especially from international investors looking in at U.S. assets, as the interest rates go up for mortgages and it gets more expensive as uncertainty in the market increases, that is going to have an effect on current homeowners to the point that they might not want to leave their property. The flip-side of that though is a potential homebuyer who doesn't currently own. If they don't currently own a home (usually Millennials) it's typically because they have been forestalled for several reasons. The biggest reason is a delaying of major life events that lead to homeownership, but another big stall is the competitiveness of the market because so many people are interested in a limited amount of inventory. With this new administration, if you ask me if these people are still going to be looking for homes the answer is yes. They aren't locked into the lower interest rates and so interest rates increasing won't have a big impact on them. If existing homeowners are starting to feel like the climate is not good for them to buy, that might spell good news for Millennial buyers in that they might have less competition.

About Author: Kendall Baer

Kendall Baer is a Baylor University graduate with a degree in news editorial journalism and a minor in marketing. She is fluent in both English and Italian, and studied abroad in Florence, Italy. Apart from her work as a journalist, she has also managed professional associations such as Association of Corporate Counsel, Commercial Real Estate Women, American Immigration Lawyers Association, and Project Management Institute for Association Management Consultants in Houston, Texas. Born and raised in Texas, Baer now works as the online editor for DS News.

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