Tuesday April 30, 2019
Despite a slowing real estate market in the 4th quarter of 2018, housing prices in 2019 will surprise many due supply of existing home shortage and demand significantly stronger than most are projecting.
Of the hundreds (maybe thousands) of data points you could watch in order to project where housing prices are headed, we’ve boiled it down to the most simplistic of economic principles – it all comes down to supply and demand.
Demand will be much higher than expected in 2019. The primary reason the market paused for a momentary breather in late 2018 was a relatively quick move higher in mortgage rates, peaking near five percent towards the end of the year. In addition to interest rates hitting their highest levels in several years, home prices in many areas of the country were hitting their all-time high. The result was sticker shock for many would-be homebuyers as their monthly payments were significantly higher than expected.
Starting in December interest rates slowly started to come back down and have made a dramatic reversal back towards four percent. With the Federal Reserve signaling no more short term interest rate hikes for 2019, it’s likely we will see relatively flat or even lower interest rates throughout the rest of the year. Lower rates make buying a home more affordable, and a good indicator that demand will increase.
Adding to the demand for housing this spring is the strong labor market, with unemployment now under four percent the United States has accomplished full employment and wages continue to rise.
Since the end of the Great Recession wages have been steadily growing and are forecasted to continue increasing as long as unemployment is low and employers are forced to compete for new employees to help grow their booming businesses.
Low mortgage interest rates, low unemployment, and increasing wages help consumer confidence and make would-be renters more confident in their decision to buy a home. The current environment is ideal for a strong housing market this spring.
Supply of housing will remain near historical lows. New home construction is still well below historical averages and with fewer new homes coming to market, existing home supply remains near historical lows.
Above every other economic factor, regardless of what the news is reporting, this spring is likely to surprise many as demand for housing will outpace new inventory coming to market. As the spring and summer buying season unfold, buyer’s will likely find themselves competing for relatively low number of homes, and will bid up prices in most areas.
If you have been sitting on the sideline waiting for the housing market to correct, this year is unlikely to be the year you have been waiting for. In many markets, the dip in housing prices and opportunity for a deal was last winter and is likely already behind us. Although housing prices are likely to move higher this spring and summer, the good news is that interest rates are likely to move sideways to lower, potentially offering you lower overall monthly payments and housing costs.
Loan Officer NMLS 219996