The Relationship Between Policies and Housing
Real estate's a highly regulated industry, which is why you have to have a license to practice it. There are all kinds of regulations in place that protect consumers when they buy or sell a home, and there are also many policies to protect you, the agent. As Mallory Meehan put it on a recent episode of Shop Talk, liability is a very scary word. You want to limit it as much as possible.
Much of real estate's regulation is on a federal level, but state regulations can differ a lot. Anyone in real estate education could talk for hours about how similar and yet maddeningly different each state's requirements are. Here are a few ways that government policies, both on the federal and state level, can have huge impacts on real estate.
The first is the most obvious. Interest rates are what dictate the repayment terms of a loan, and a majority of real estate is purchased with a loan in the form of a mortgage. When interest rates rise, mortgage rates go right along with them, which makes it difficult for the more cash-strapped buyers to hang in the game. After being pleasantly low for some time, interest rates have gone up in the past few months. Even though they're higher than they were, today's rates are nothing compared to the all-time high of 20% in March 1980.
Interest rates are at the heart of the complicated dance that is the US economy, and are set by the Federal Reserve Board. Rates rise in an effort to combat inflation, which is a nasty side effect of having a strong economy.
In hot markets around the country, the big housing story over the past few years has been about the inability for new construction to keep up with demand. The construction industry took a big hit from The Great Recession of 2008, and even though the economy has recovered, construction is a slow-moving beast. Houses are being built and progress is being made, but tariffs are still a factor that can grind that progress to an abrupt halt.
Home builders only build a house if they can turn a profit, and they factor in the cost of all building materials when they calculate their house prices. If those materials suddenly go up in price - thanks to, for instance, a trade war with China - then the builder will likely scale back their construction plans, or put a hold on them altogether, which would further limit the availability of new construction in markets that are desperately trying to keep up with demand.
Speaking of those hot markets, some places are just more desirable than others. Places like Nashville or Boise, formerly neglected in fly-over states, are now some of the fastest-growing cities in the nation, and Texas has been enjoying a particularly impressive growth rate as more and more people flee pricier locales like NYC and San Francisco.
Taxes are an often-cited reason for the migration to the Lone Star State, especially when CEOs justify uprooting their entire organization. California's had a slew of legislative policies viewed by some as anti-investment and job killing, whereas Texas has low taxes, abundant land, no income tax, and is historically very favorable to new corporations setting up shop. Local politics can make a huge difference in convincing massive companies to move next door, as we saw with Amazon's nationwide search for HQ2 last year.
Which brings us to the most powerful word in any real estate agent's repertoire. Say it with me: location, location, location.
There's only so much a state can do about their proximity to mountains or an ocean (good luck suddenly creating oceanfront property overnight), but a lot can be done to make a city or state more amenable to newcomers. Locals in nearly every booming city complain about ever-worsening traffic conditions, and it's not a problem that will magically disappear. How local governments choose to address those problems can seriously affect their real estate markets.
Big investments in light rail lines in Denver and Los Angeles have made it far easier to get around without a car, and Seattle leads the charge to eliminate cars altogether - or at least as many as they can. Last year Seattle announced that they were growing transit ridership faster than anywhere else in the country, and new bike lines are popping up all over the place. If your house happens to be next to these new bike lines or train stations, then congratulations! Your property value just spiked.
Read more about the factors that affect the real estate market here.
Have any more examples of how government can affect your day-to-day real estate life? Tell us about it in the comments below.