Real Estate Indicators That Affect The U.S. Housing Market

Whether you’re looking to buy your first home or your eighth, it helps to understand the shape the housing market is in, both in your area and more broadly in the financial sense. If you want to refinance, there are also ways to determine if it’s a good time to do that in addition to considering your goals.

What Is The Real Estate Housing Market?

The housing market can broadly be defined as anything affecting the sale or rental of homes. Because the ability to refinance is very tied into home value, it’s important to be aware of this even if you’re just looking at new financing as well. Market conditions have a significant impact regardless of your goals with the refi.

One of the most important things to know is that the market is constantly changing. Given this, it’s key to follow real estate trends closely if you’re looking to buy a home or make a move with your mortgage.

Some of this market stuff comes down to physical housing stock itself. For instance, part of affordability is the type and amount of housing on the market. How many houses are for sale and are they starter homes or more luxury housing?

However, the financial markets have just as big of an impact on housing and affordability given the importance on mortgage rates. So, the 10-Year U.S. Treasury and mortgage-backed securities (MBS) could also be considered as having a huge effect on the housing market.

The Top 7 Housing Market Indicators In The U.S.

Here are the key housing market indicators you need to understand whether you’re going through the home buying and selling process or looking to refinance.

1. Mortgage Rates

Mortgage rates are the interest rate charged on your home loan. This is determined, in part, by personal financial factors such as your credit score and the size of your down payment, but it’s also about market factors, including demand for MBS. Mortgage rates also tend to closely follow the movements of the 10-year U.S. Treasury.

Speaking generally, when people are feeling more pessimistic about the economy, they tend to invest more heavily in bonds, including MBS, because it offers a fixed rate of return. When people feel better about the economy, they’ll invest in stocks because there’s a potential for higher payoff in exchange for taking on more risk.

Another common U.S. housing market indicator can be found in interest rates on 30-year fixed mortgages. Typically, the lower the interest rate, the less money that home buyers will have to pay to finance a mortgage and purchase a property. Lower interest rates on 30-year fixed mortgages tend to boost demand for real estate purchases and bring prices up. Higher interest rates tend to have the opposite effect on real estate transactions.

2. Affordability

Home affordability and rental affordability speak to the percentage of folks who live in a specific area that can qualify for mortgages and rentals. This information is compiled by surveyors who compare the average prices of homes or rentals in the area against the median income of households in the same locale.

In other words: Home affordability can be considered low if most individuals wouldn’t qualify for a mortgage according to their average income. On the flip side, it can be considered high if locals bring in considerably more income than needed to handle the average mortgage for the region. First-time home buyers especially may wish to look for areas with higher home affordability.

Rental affordability – the percentage of people who can afford to rent apartments, homes and condos in a specific area – presumes that most renters will spend 30% of monthly income maximum on rent. If the average household spends less than a third or so of their income renting, rental affordability is high. If they spend more than that on rentals, it can be seen as low instead.

Real estate investors who purchase in areas with high rental affordability will have access to more tenants, but will generally bring in less money in rental income. Those who buy in areas with low affordability can charge more rent monthly but will typically have a harder time attracting tenants.

Although the Department of Housing and Urban Development (HUD) applies this to rent, it’s not a bad metric to apply to your house payment. The same logic around monthly cost applies. To put in some of your own numbers, check out our home affordability calculator.

3. Housing Supply

Wondering how much housing inventory is sitting around and piling up? Housing inventory indexes can help you get a better sense of how many vacant homes are up for sale. These indexes are updated annually and can also give a sense as to how many new vs. old properties are on the market, as well as a better sense of impending price shifts.

The lower the housing supply in an area (and less houses there are to buy), the more prices tend to go up and competition increases among home buyers. Alternately, if housing supply is trending upward (for example, because the area has been overbuilt or people are moving to other areas of the country), prices are likely to drop.

While there are national reports on both new construction and existing home sales that can give you an idea of inventory, a localized market trend report will give you a much more definitive idea of what’s happening in the area where you’re looking to buy. In general, the market is considered in balance between buyers and sellers when there’s about 6 months’ supply based on the current pace of sales.

Your real estate agent can also anchor you firmly with realistic expectations for what’s happening within your market.

4. Home Prices

Home prices are impacted by inventory, but they also can move the market in and of themselves. If homes are priced to sell (that is, cheaper), more inventory will move and there will be more sales than if prices are higher. Of course, what people are willing to pay is also impacted by interest rates.

If home prices are out of step with the current market, they’ll have to come down before people are willing to make a purchase. One way you might know that a price correction is in order is if a home has spent an inordinate amount of time on the market. If the home has been on the market a while, you could end up having more room to negotiate or wait for a price drop.

5. Home Sales

Another indication of the health of the housing market in a particular area is how many home sales there are. If there are very few home sales in a desirable neighborhood, sellers can charge a premium and it may be thought of as a seller’s market.

If there are more sales over a shorter period, it could be a sign that people are moving out of the neighborhood and you could get a better deal in a buyer’s market.

6. Foreclosure And Delinquency Rates

Two things that suggest buyers are having trouble making mortgage payments are foreclosures and mortgage delinquencies. These are loan repayments that are 30 days or more late (as tracked on mortgage delinquency indexes).

These indexes can serve as warning indicators to real estate investors and aspiring home buyers that the cost of living in the area is going up, that local incomes are falling or that loan applicants’ financial situations are deteriorating. The more mortgage delinquencies or foreclosures that you see happening in an area, the more your radar antennae should be going up.

Seriously delinquent mortgage indexes likewise give a sense as to how many borrowers are more than 90 days behind on loan payments. The more seriously delinquent mortgages that you see appearing, the more individuals in the area who are risking foreclosure, and the more warning bells that should tend to pop up.

Rising trends here may indicate that the local economy is on the decline or that home purchases were overpriced at the time borrowers closed on their mortgage. You’ll likely find a high number of foreclosures available, which may be less attractive unless you’re a DIY rehabber or real estate investor with a long-term appetite for risk.

You can also look to underwater borrower indexes as a housing market indicator as well. These monitor how many homeowners owe more money on their homes than the properties are worth.

The more underwater mortgages you see, the more you’ll get a good sense that the housing market is on the decline. Conversely, if the number of underwater borrowers is falling, it’s a sign that the housing market is getting stronger.

7. Mortgage Originations

The number of new mortgages in any given area can also be an indicator of the relative strength of the housing market. Put simply: Mortgage origination indexes monitor and reflect the number of new mortgage loans being issued in a specific locale – and the more mortgages that are being extended, the more activity that’s happening in the region.

Large numbers of mortgage originations tend to indicate that homes are more affordable and that home prices are more accessible to a wider range of buyers. 

The Bottom Line

The housing market can be defined as the aggregate of all the real estate transactions that take place within a given area. Because mortgage rates in the financial markets are heavily tied into client options, the movements of MBS and things like the 10-Year Treasury also have a massive impact on the housing sector. However, there are several other factors to look at such as supply, prices and sales in an area.