If you are thinking of Buying or Selling Real Estate in the next year you need to read this.
Every day I am asked by clients what I think the market will do in the future. This is next year in a nutshell.
Interest rates will continue to rise, which will slow the increase in prices from over 7% this year to around 3% for 2019. Yet prices will keep going up, even as interest rates continue to rise. This will impact home affordability in a negative manner. Yet the job market will remain strong in The Bay Area, housing inventory will stay low, so we will still see a strong sellers’ market, just not crazy like this year.
Here is a short article from M Report that also gives you an overview of what is in front of us for 2019. Note, prices are STILL below 2006 and 2000 levels.
While real house prices stayed relatively flat month over month, according to the July 2018 First American Financial Corporation, home prices rose 12.2 percent year over year.
Additionally, real house prices are 37.9 percent below their housing boom peak in July 2006 and 12.0 percent below the level of prices in January 2000.
According to Mark Fleming, Chief Economist at First American, mortgage rates are expected to rise, and notes the incoming Federal Open Market Committee Meeting (FOMC).
“The Federal Open Market Committee meeting is just around the corner and a rate hike is almost certain, according to experts, which will trigger conversations about rising mortgage rates across the housing industry. While changes to the federal funds rate won’t necessarily spur further increases in mortgage rates, mortgage rates are expected to rise nonetheless,” said Fleming.
“Mortgages rates typically follow the same path as long-term bond yields, which are expected to increase due to inflation driven by healthy economic growth. This inflation-driven increase in long-term bond yields will, in turn, increase mortgage rates,” said Fleming. “Due in large part to the strong economy, the 30-year, fixed mortgage rate has increased 56-basis points over the past 12 months.”
According to Fleming, the 30-year, fixed mortgage rate will increase from its current rate of 4.53 percent to an average of 5 percent in 2019. Fleming states the the rate increase will not impact rising home sales, but how will it impact affordability?
“If the mortgage rate increased from its current level of 4.5 percent to the expected level of 5 percent, assuming a 5 percent down payment, and the July 2018 average household income of $64,000, we find that house-buying power falls a modest 5.5 percent, from $366,000 to $346,000,” said Fleming. “In this hypothetical 5 percent mortgage rate environment, consumer-house buying power would be 11 percent lower than it was in July 2017, when the 30-year, fixed mortgage rate was 3.97 percent.”
Find the complete report here.
Here is the CAR 2019 Housing Forecast as well.
C.A.R. releases its 2019 California Housing Market Forecast
Market shift underway as housing shortage issue becomes demand issue
LOS ANGELES (Oct. 11) – A combination of high home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and 2018 home sales will register lower for the first time in four years, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.).
C.A.R.’s “2019 California Housing Market Forecast” sees a modest decline in existing single-family home sales of 3.3 percent next year to reach 396,800 units, down from the projected 2018 sales figure of 410,460. The 2018 figure is 3.2 percent lower compared with the 424,100 pace of homes sold in 2017.
“While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues,” said C.A.R. President Steve White. “Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019.”
C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 2.4 percent in 2019, after a projected gain of 3.0 percent in 2018. With California’s nonfarm job growth at 1.4 percent, down from a projected 2.0 percent in 2018, the state’s unemployment rate will remain at 4.3 percent in 2019, unchanged from 2018’s figure but down from and 4.8 percent in 2017.
The average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 and 4.0 percent in 2017, but will still remain low by historical standards.
The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7.0 percent increase in 2018 to $575,800.
“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting homebuying decisions. This psychological effect is creating a mismatch in price expectations between buyers and sellers and will limit price growth in the upcoming year.”
Outmigration, which is a result of the state’s housing affordability issue, will also be a primary concern for the California housing market in 2019 as interest rates are expected to rise further next year. The high housing cost is driving Californians to leave their current county or even the state. According to C.A.R.’s 2018 State of the Housing Market/Study of Housing: Insight, Forecast, Trends (SHIFT) report, 28 percent of homebuyers moved out of the county in which they previously resided, up from 21 percent in 2017. The outmigration trend was even worse in the Bay Area, where housing was the least affordable, with 35 percent of homebuyers moving out because of affordability constraints. Southern California did not fare any better as 35 percent of homebuyers moved out of their county for the same reason, a significant jump from 21 percent in 2017. The substantial surge in homebuyers fleeing the state is reflected by the home sales decline in Southern California, which was down on a year-over-year basis for the first eight months of 2018. Outmigration will not abate as long as home prices are out of reach and interest rates rise in the upcoming year.
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