let’s talk : 2019 RE MARKET FORECASTS
Last week we did a 2018 recap… this week let’s chat about what we can expect in 2019!
So, as we do, let’s talk Real Estate, let’s talk 2019 RE MARKET FORECASTS…
Honestly, experts are forecasting that we may not really see much change from the last half of 2018. But what does that really even mean?!
LOW INVENTORY (but not as low as it has been)
Low supply, rising interest rates and housing prices could make it a tough year for home buyers. Overall, the market has been a “sellers market” for the past 6-7 years. A seller’s market means that the seller’s traditionally have more negotiation power due to the demand outweighing supply. Despite much speculation around the housing market crashing, “experts” suspect 2019 to be no different from 2018 in that we will continue to see a seller’s market.
HOME PRICES WILL CONTINUE TO RISE (but at a slower pace)
This kind of goes hand in hand with the above issue, low inventory. Home prices CAN rise because there is the DEMAND for them. The good news here for home buyers? Prices are not expected to rise as quickly in 2019 as they did in 2018 (so some are saying). NAR (National Association of Realtors), CoreLogic and Realtor.com have differing views on this matter when compared to Fannie Mae;
“NAR predicts that existing home prices will rise 2.5% in 2019, to a median of $265,200, compared with a 4.7% rise in 2018, to $258,700.”
Fannie Mae forecasts that median home prices will go up to 4.7% in 2019 vs 4.5% in 2018.
Another interesting driver in this slowed price appreciation? New tax reform. The new tax laws limit the amount of mortgage interest deduction one can take for those who purchased a home after the law was passed a year ago. This provides less incentive for people to purchase new homes – especially homes in the higher end markets! It is still to soon to make a definitive call on how much of an impact the new tax laws will have on the RE market so we are going to have to circle back on this one at a later date.
INTEREST RATES WILL CONTINUE TO RISE
Okay, so there is also speculation on this too! See the thing is, mortgage rates were rising UNTIL THE LAST MONTH OR SO. So is there something we do not know?! Will they continue to rise? By how much?! While almost everyone (aka NAR, Freddie Mac & Fannie Mae) is an agreement that interest rates will continue to rise, there is some speculation on just how much they will increase.
AFFORDABILITY IS A BIT OF AN ISSUE
With home prices and interest rates on the rise we are seeing an affordability issue appear… which is why we may have heard whispers surrounding a market correction in the near future. Market specialists are saying that while we are hitting the upper end of the affordability bubble, they do not see the market “correcting itself” rather instead they expect we will just a decrease / slowed pace in how fast prices are rising.
SMALLER HOMES ARE SO HOT RIGHT NOW
We talked about how we saw this trend last week! Buyers are okay with smaller homes, as long as they have everything they need, and builders are responding to this market trend. We are starting to see smaller, more affordable new construction pop up. The median size single family home today is ~2,320 sq ft whereas 3 years ago it was closer to 2,440 sq ft.
FIRST TIME BUYERS WILL CONTINUE TO DOMINATE THE MARKET
Traditionally, first time home buyers have dominated the mortgage industry, comprising 40% of the market however today we are looking at this stat being closer to 60%. Why? Delayed purchases from you guessed it – millennialls. First time home buyers have been delaying their purchase for a while now and are reaching the age and stage in life where they can no longer afford to do so.
MILLENNIALS WILL DRIVE THE MARKET
Poor millennials, (forewarning this is a “woe is me” moment for all you non-millennials out there) BUT we have such a bad rap and now they are talking about how our generation is getting older (ugh!). Anyways, BECAUSE we are getting older, more millennials are out there doing things like getting married, settling down, and purchasing homes. Despite there being a big portion of this generation who do not wish to settle down as quickly as their parents might have, we are starting to take over the RE market a bit, and experts expect this to only become more apparent in the coming year.
LENDING REQUIREMENTS ARE EASING UP
After the last financial crisis banks learned the hard way and really tightened up on their lending requirements. There has been some argument as to whether lenders overcorrected after this incident making it too hard to get a home loan. Slowly but surely we are seeing lenders start to lessen these requirements in the form of acceptance of lower credit scores, less required documentation and larger LTV (loan-to-value) ratios which basically just means smaller down payment requirements.
ADJUSTABLE RATE MORTGAGES (ARM) ARE IN
An increase in fixed rate mortgages typically means that there is an increase in the number of borrowers who opt for adjustable rate mortgages. I mean it makes sense – why would you want to lock in on a “higher” rate? An ARM has lower rates (compared to fixed rate mortgages) in the first few years of the mortgage, giving the home buyer a lower monthly payment. To me, ARMs sound too good to be true, so what is the catch? Borrowers risk that their rates may climb significantly when the rate adjustment period begins.
OKAY SO WHAT ARE OUR BIG TAKEAWAYS HERE FOR THOSE WANTING TO BE A PLAYER IN THE RE MARKET?!
If you are a seller, do not expect your home to sell as quickly as it might have in 2017 & 2018. And you may, depending on your local market, have to be okay with more realistic pricing and incentives. But overall the good news for you is that THIS IS STILL YOUR MARKET AND YOUR TIME TO SHINE (you just might not shine as bright as you would have in ’17 & ’18).
If you are a buyer, you should have a bit more breathing room (for now!). While inventory is expected to remain on the lower end, it should not be as low as it was the past year or so, giving you more time to make a rational decision and not necessarily force you into one bidding war after another.
NOW ALL THAT BEING SAID….
This is all speculation and truthfully like with everything else in life…only time will tell!
Happy New Year everyone!
LET US KNOW WHAT YOU THINK WE CAN EXPECT IN THE COMING YEAR!
Feel free to comment on the blog post HERE and let us know what YOU think!
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