According to industry leaders and professional associations, the housing market is expected to slow down in 2019, but home ownership is likely to rise.
On top of that, it is anticipated that mortgage rates will continue to remain historically low.
New housing will face the continuing pressures of labor shortages in the construction industry and the rising costs of building materials.
Perhaps most optimistic of the analysts reviewed, the National Association of Realtors thinks that first-quarter 2019 consumer sentiment points to an on-the-ground revival in home purchases this year thanks partly to some of the most extensive inventories in hot markets.
Existing Home Sales
For the first quarter of 2019, the Mortgage Professional America Magazine reports that, even though home sales for February 2019 were up over reported existing home sales in February 2018, overall, the quarter is down year over year.
Regarding the second quarter of 2019, the LegalShield Real Estate Index does not see a “prolonged period of recovery” for existing home sales.
A measure of relative consumer financial stress, the LegalShield Consumer Financial Stress Index, showed a slight decrease in December 2018.
This data, in combination with a steep decline in consumer confidence in April 2019 as measured by the Conference Board’s Consumer Confidence Index, both contributed to what many analysts believe was overstated consumer confidence in the last quarter of 2018, which would explain the relative decline in existing home sales year over year according to MPA Mag.
New Home Sales
New home sales are demonstrating robust growth despite predictions of a slowdown in the market stretching back to November 2018.
Back then, new home sales were expected to decline overall but experienced robust growth.
Rather than reporting a decline, in the fourth quarter of 2018, we posted a 3.7% increase, giving some momentum to quarter one 2019 new home sales, which are both buoyed by low mortgage rates and decreased cost-pressure from building materials.
Last year, CNBC reports, new home sales faced downward pressures from both higher mortgage rates and more expensive building materials overall.
Mortgage rates are at 12-month lows, and material costs are relatively in check. However, this has done nothing to dissuade naysayers who point to labor shortages and land scarcity as two massive forces that will also act to deter new home sales growth over the next year.
Data from 2018 was initially revised downward from its initially much rosier numbers. However, both numbers still exceeded Reuters’ analysts’ expectations, which pegged new home sales as experiencing an 8.7% decline in quarter four of 2018.
The release of the official numbers was delayed by the U.S. government shutdown that impacted many federal departments earlier this year.
Whether or not the first quarter of 2019 is experiencing a runoff effect from the last robust quarter or is part of an upward trend remains to be seen. However, the fourth quarter of 2018 bucked expectations and is seen as helping to underpin many predictions moving forward.
HUD Data Points to Weaker Housing Sector in 2019?
Some market analysts are taking the HUD numbers from 2018 to mean that 2019 will be weaker overall, and they point to the downward trend as evidence for this.
Homebuilding dropped in December 2018, while prices for new privately-owned homes declined on average compared with the same time in 2017.
The number of new privately-owned homes for sale in December 2018 numbered some 343,000 at an average price of $377k compared with December 2017’s lower unit figure of 294,000 but a higher average selling price of $402,900.
Investors and market watchers believe that the increase in volume in this sector and the marked decrease in average sales price could combine with the difficulties in building new homes, such as labor shortages and increased material costs, to deteriorate the overall market further.
For example, HUD figures show that single-family homes posted a meager 1.5% growth year over year while new-home sales declined some 2.4%.
As outlined above, though mortgages are currently at 12-month lows, there is no guarantee that this trend will continue immediately, especially given the Trump administration’s push for the Federal Reserve to raise interest rates and reward savers.
According to the Guardian, the degree to which this becomes a reality could adversely impact consumers’ ability to borrow money cheaply to buy new homes.
NAR Thinks the First Quarter of 2019 is the Perfect Time to Buy a House
Meanwhile, the National Association of Realtors has a rosy outlook for the first quarter of 2019 and beyond.
Much of this is based upon consumer confidence from polling conducted by the NAR, but also from some on-the-ground anecdotal evidence from realtors pointing to strong consumer demand for homes in general.
A National Association of Realtors survey of consumers discovered that a complete 37% believe that now is as good a time as ever to purchase a home.
This number is slightly down from a year ago but up from December 2018’s 34%.
There was a slight decrease in respondents who felt that the economy was performing well – down from 59% to 54% – with tremendous confidence among those living in rural areas and making over $100,000 annually.
Lawrence Yun, the chief economist for the National Association of Realtors, said, “First, inventory has been rising, so those buyers interested in making a purchase will not be limited in choices. Additionally, more stable home price trends are leading to more foot traffic at various open house gatherings.”
Some of this optimism might also be because of the perception that home prices are more affordable now than before. Perceptions of ever-increasing home prices stopped in December 2018, and this trend continued in the first quarter of 2019 as 61% of poll respondents felt that prices were rising as opposed to 63% a year prior.
As for variance in consumer expectations about home pricing throughout 2019, the West is experiencing the most significant shifts or, as Yun explains, “A high percentage of the Western population believes that prices increased in the past year, while – possibly
for the same reason – a higher segment from the West compared to other regions
say prices could fall in the next 12 months. The perception of the broader economy is weaker and showing cracks in the Midwest.”
Consumers who are hesitant to buy a home often cite concerns with qualifying for a mortgage or being able to afford one over the long term. This is despite the historically low mortgage rates currently on offer.
“The Federal Reserve’s decision to refrain from any foreseeable rate hikes benefited potential buyers. That move directly contributed to mortgage rates declining in quarter one, which provided a second-chance opportunity to those looking to buy who were priced out last quarter.”
As for how the realty industry can help tap into consumers who can afford a home but are afraid of the mortgage process, it would seem that the combination of pricing perceptions and relative economic strength play outsized roles in the decision-making process for these
Zillow Reports Highest Inventory Levels in Five Years
Zillow reported that January 2019 reversed a years-long trend that meant for the “first time in at least a half-decade, the U.S. housing market began the calendar year with more homes available for sale than the year prior,” according to the company.
The company says that there were 1.6 million homes listed in January 2019, up 1.8% over 2018, though these numbers are far from the highest the site has recorded.
According to Zillow, inventory rose in 28 out of the 35 largest markets in the United States, with many West Coast markets adding to their list in increasing numbers.
But, as Zillow points out, a rise in inventory should not be confused with a bargain price. Even with inventory increasing, home prices are not going lower – if anything, they are leveling out.
This price stability or increases likely reflects new-home construction labor and materials pressures. That said, Zillow makes a case for buying a home if you’re trying to save money by highlighting that rents are increasing.
Zillow states that “The U.S. median rent rose to $1,468/month in January, up 2.1 percent from a year ago, the largest annual increase in rent since May 2018 and the third straight month of annual growth after a brief flattening and decline in August, September and October 2018.”
Redfin Predicts Slow 2019
Redfin agrees that rising inventories will be a trend we see in 2019, but they also think there will be a marked “cooling” of activity on the investment side of the market.
Home flippers and corporate resellers will likely face challenges over the coming year that they haven’t contended with in some time. Despite that, Redfin thinks homeownership will continue to rise even if the Federal Reserve raises rates.
Twinned with this is that those rising rates will lead to more buyers who are qualified to borrow since banks and financing companies will want to take advantage of rising mortgage rates.
This will probably only slightly impact overall economic activity and lead to fewer new homes being built.
Redfin’s significant challenges coming in 2019 are the increasing problem of finding affordable housing in major cities and the need to build new housing in those areas.