The housing market is expected to slow down somewhat in 2019 but home ownership is expected to rise according to industry leaders and professional associations.
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 as well as 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 in part to some of the largest inventories in hot markets in years.
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 as a whole.
As far as second quarter 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 all the way back to November 2018.
Back then, new home sales were expected to have an overall decline but actually experienced robust growth.
Rather than reporting a decline, the fourth quarter of 2018 actually posted a 3.7% increase, giving some momentum to quarter one 2019 new home sales which are both buoyed by low mortgage rates as well as a 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.
Now mortgage rates are at 12-month lows and material costs are relatively in check though this has done nothing to dissuade naysayers who point to labor shortages and land scarcity as two massive forces that will also act to stymie new home sales growth over the next year.
Data from 2018 was initially revised downward from its initially much rosier numbers but both numbers still exceeded Reuters’ analysts’ expectations which pegged new home sales as experiencing a 8.7% decline in quarter four of 2018.
The release of the official numbers were delayed by the US 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 but that the fourth quarter of 2018 bucked expectations is seen as helping to underpin a lot of the 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 higher average selling price of $402,900.
Investors and market watchers believe that the increase in volume in this sector, coupled with 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 further deteriorate the overall market.
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 we outlined above, though mortgages are currently at 12-month lows there is no guarantee that this trend will continue in the immediate future, especially given the Trump administration’s push for the Federal Reserve to raise interest rates and reward savers.
The degree to which this becomes reality could have an adverse impact on the ability of consumers to borrow money cheaply to buy new homes according to The Guardian.
NAR Thinks the First Quarter of 2019 is the Perfect Time to Buy a House
The National Association of Realtors, meanwhile, has a very rosy outlook on the first quarter of 2019 and beyond.
A lot of this is based upon consumer confidence from polling conducted by the NAR, but also from some on-the-ground anecdotal evidence from realtors that points to strong consumer demand for homes in general.
In fact, a National Association of Realtors survey of consumers discovered that a full 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 number of 34%.
There was a slight decrease in the number of respondents who felt that the economy was performing well – down from 59% to 54% – with the greatest confidence among those living in rural areas and making over $100,000 per annum in income.
Lawrence Yun, the chief economist for the National Association of Realtors, said that, “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 prices on homes 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 with regard to home pricing over the course of 2019, the West is experiencing the greatest 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…As to the broader economy, the perception is weaker and showing cracks in the Midwest.”
Consumers that 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 was beneficial to 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 that 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 consumers.
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.
Inventory rose in 28 out of the 35 largest markets in the United States according to Zillow with a lot of West Coast markets adding to their inventory in increasing numbers.
But, as Zillow points out, a rise in inventory should not be confused for a bargain price. Even with inventory increasing, home prices do not seem to be going lower – if anything they are leveling out.
This price stability or increases likely reflects the pressures of new-home construction labor and materials. That said, Zillow does make a case for buying a home if you’re trying to save money by also 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 that there will be a marked “cooling” of activity on the investment side of the market.
That is, home-flippers and corporate resellers will likely face challenges over the coming year that they haven’t contended with in some time. In spite of that, Redfin thinks that home ownership will continue to rise even if the Federal Reserve raises rates.
Twinned with this is that those rising rates will lead to more buyers that are qualified to borrows since banks and financing companies will want to take advantage of rising mortgage rates.
This will probably only have a slight impact on overall economic activity and will probably lead to fewer new homes being built.
The major challenges that Redfin sees coming in 2019 have to do with the increasing problem of finding affordable housing in major cities as well as the need to get new housing built in those areas.