2019 Housing Market Forecast: Facts Not Fiction
Are Home Prices Headed For Another Crisis? Is another market crash on the horizon? Does the fact that listing and price adjustments are increasing in frequency, signal that we are headed into another 2007 market crash again?
Get Passed The Headline
One thing is clear, there’s a lot of chatter out there painting doomsday scenarios in real estate in the near future. I wrote this article in an effort to dispel these fear mongers with facts.
Keep in mind that apart from startling headlines designed to build online clicks, there’s little substance to support claims that we are falling headlong into another housing crash.
Allowing the rate of home appreciation to continue to climb unchecked would indeed have spelled trouble for the market. With 2006/07 crash still fresh in our memories, we needed to slow the rate of appreciation down.
According to CoreLogic, 67% of metro area homes were way over valued until reaching it’s
Like many industries, real estate follows the law of “supply and demand”. During 2017 and into 2018, when housing inventory fell below three month supply, demand was high. Home buyers were out in force wanting to take advantage of the
Some homeowners across the nation, saw prices rising 6-12% nationally and raised their prices accordingly. Here in Michigan, home prices were up 6.5% in most areas.
A Healthy Correction
The two things this market needed was more listings to meet the demand of home buyers and a leveling off of prices to calm fears that we were headed into another bubble. What we are now seeing is a natural outcome of increased inventory. It’s basic economics, folks.
We saw this in the luxury market where home appreciation was much slower than the starter home market. During the past 18 months, the number of luxury listings was high. However, the largest portion of home buyers consisted of Millennials looking for their first home.
So, too many luxury homes for sale but not enough buyers resulted in a soft market. Fewer sales, longer days on market caused the home appreciation to slow right down. All the while, the starter home market ($150k – $250k) were selling in a matter of days and often with multiple offers which pushed sale prices above the listing price.
So you see that as the number of homes for sale continues to grow, the rate of price appreciation starts to decelerate. Some people see this and start to get nervous. Despite the fact, that in reality, this is exactly what the market needed.
Frankly, what we are seeing is a slow down in price appreciation, NOT a depreciation. That’s right. The rate of price appreciation has slowed down and seems to be leveling off at around 6% nationally so homeowners will have to start adjusting their prices accordingly.
Is A Recession Coming?
Our current economy is booming. Jobs are plentiful and we are enjoying the lowest unemployment rates in ten years. Jobless claims dropped dramatically to record lows and we are starting to see wages starting to increase even as interest rates rise.
Gross Domestic Product (GDP) gross hit an all time high of 2.93% growth in 2018 compared to the previous high of 2.86% in 2015. The forecasted GDP growth for 2019 is 2.66%, compared to 1.49% in 2016 and 2.27% in 2017.
Eventually, the rate in which the economy is growing is going to slow down and we’re starting to see that with the GDP projected growth rate for 2019. Much of that has to do with rising interest rates.
In sharp contrast, unemployment peaked at 10% in 2009 and the nation’s economy suffered a loss of over 8.7 million jobs and homeowners losing over $16 Trillion in net worth.
After the damage was done, there were several economic stimulus measures put in place in 2010. The biggest jump towards full recovery came in 2017. As of December 2017, unemployment came in at 4% and now stands at 3.9% nationwide.
That’s not the case today. Referred to as the oracle of real estate and founder of Keeping Current Matters, Steve Harney states, “Prices are not going to crash, that’s not happening.”
Keeping Current Matters surveyed over 100 economists in the country and real estate professional and 98% are agreeing that prices will have about 4.5% appreciation going forward. Which is still higher than the 3.5% historical average.
When looking at their projections over the next five years, not one of them is expecting a market crash or severe depreciation. Click to r
“The current market conditions are fundamentally different than what we were experiencing before the recession 10 years ago. Most states are reporting stable or strong market conditions, housing starts are under-producing instead of over-producing and we are seeing historically low foreclosure levels, indicating that people are living within their means and not purchasing homes they cannot afford. This is a stronger, more stable market compared to the loosely regulated market leading up to the bust.” Lawrence Yun, Chief NAR Economist
Nationally, median home prices are expected to rise $266,800 in 2019 to $274,000 in 2020, a 3.1% gain over the next 24 months. The rate in which “Home price appreciation will slow down – the days of easy price gains are coming to an end – but prices will continue to rise.” – L. Yun.
What about the rise of interest rates?
There is no doubt that higher rates have an impact on buyer psychology. For Millennials rates were well under 5%. Understandably, they are are now experiencing some sticker shock. Keep in mind, they are still able to purchase a home at rates far below what their parents were paying.
For those that worry that rising interest rates are an indicator of a market crash. Contrary to what some may believe, interests rates were dropping, not rising, just before the 2006/07 market crash. During this time, lenders were encouraged to relax their standards and people who would not have otherwise qualified for mortgages, were suddenly eligible. When the bottom fell out and sudden unemployment hit, many homeowners walked away.
NAR, Freddie Mac and the Mortgage Bankers Assoc. are all saying that home sales will rise in 2019. Going so far as to say that the number of transactions they are predicting will exceed that of 2018. For more on where interest rates are headed, click here.
What’s happening with new construction industry?
Prior to the 2006/07 market crash, new construction had flooded the market. Many home builders were left with
Although the new construction market began to pick up in the last 18 months, it’s still well below what it needs to be. According to Freddie Mac, the new construction industry fell short of the number of new build inventory by as much as 2.5 million nationwide. However, we do expect a rise of new construction homes to continue through 2019.
Are lending standards getting too loose right now?
There’s plenty of evidence that points to the fact that the lowering of credit standards played a major role in driving the boom & bust of 2007. Each month, the Mortgage Bankers’ Association (MBA) releases a measurement which indicates the availability of mortgage credit known as the Mortgage Credit Availability Index (MCAI). This calculation includes credit score, loan type, loan to value ratio, debt to income ratio and more. Basically, the higher the number, the easier it is to obtain mortgage financing.
During the buildup that lead to the last housing bubble, the MCAI sat at around 400. In 2005 and 2006, the measurement more than doubled to over 800 and was still at almost 600 in 2007. When the market crashed in 2008, the index fell to just over 100. Today the MCAI sits at 186.7 – indicating
What does this mean for me selling my house?
Keep in mind, the numbers I refer to here in this blog are mostly national, not local. I live and work as a full-time Realtor in Livingston County, Michigan where home demand is still very high. We’ve only just started to see a slight slow down in home appreciation rates coupled with a slow increase in inventory month over month.
This is still a great time to sell because homes have NOT depreciated and market values are at around 6%. Depending on when you purchased your home and how much equity you’ve built up over the years, now is a great time to leverage your most valuable asset into an upgrade or downsize to a smaller home. Click to r
The sooner you list your home for sale in 2019, the better because you’ll be able to get ahead of the Spring/Summer market influx where competition is always much higher. Serious home b
What does this mean for first-time home buyers?
With 2019, comes more inventory which means more to choose from. Home prices are starting to level off now but don’t expect a big drop. More inventory also means homeowners will be more willing to negotiate and there’s a greater chance of securing that perfect first home. It also means less bidding wars you’ll have to engage in. Read “Armed & Ready: 5 Winning Home Buyer Tips”.
Comments & Questions
As always, I invite you to leave your comments below. Do you have any questions? I’m happy to help.