WHAT TO NEGOTIATE WHEN BUYING A HOUSEWhether you are a first-time homebuyer or a seasoned veteran, the negotiation part of the transaction can be a little daunting and stressful. However, it is
What To Expect From The Housing Market In 2019
What to Expect From the Housing Market in 2019
Whether you're looking to buy or sell a home in 2019 – or find the perfect rental – it helps to know what you're up against. In many markets, the trend of a low volume of homes on the market compared to the number of buyers that has been fueling bidding wars and rapid increases in home prices may losing steam, but rising interest rates may also cause more buyers and sellers to hold off on making a new deal.
Here’s what to expect from the housing market in 2019.
The most common topic of conversation for potential homebuyers and sellers going into the new year is about rising interest rates. Mortgage rates are at their highest mark since 2011, and while higher interest rates are a sign of a good economy – especially compared with historically low unemployment rates – the change has many consumers hesitating about jumping into the housing market.
The Federal Reserve hiked interest rates three times in 2018 – with a fourth likely before the new year – and has also expressed plans to increase them more than once in 2019. While mortgage rates set by lenders are not beholden to the Fed’s set rate, they do often echo changes in the long run.
The decline in active buyers will likely lead to a slowing growth of home prices across the U.S. While prices have outpaced wage growth in many major markets for the last few years, that growth will continue to slow and possibly flatline in a couple areas, particularly in smaller metro areas where price growth hasn't been as quick.
“In the better markets … it’s going to continue to grow, but not as fast as it did before,” says Nick Ron, CEO of House Buyers of America.
Homeowners looking to sell their property may be hesitant to put their home on the market because that also means purchasing a new house, which more often than not requires a brand-new mortgage and more current interest rate. As a result, consumers can expect continued low inventory of houses on the market while buyers and sellers try to adjust to new rates.
Instead of selling, homeowners will continue to build equity as they make monthly payments on their existing mortgage and improve the property to increase its value, which will allow them to see greater profits when they decide to sell.
Home sellers are also seeing growing number of alternatives to placing their home on the market. The last few years have seen growth in the number of iBuyers and similar investment companies that specialize in quick cash purchases of properties to renovate and resell them. Rather than listing their home with a broker, homeowners can contact companies such as House Buyers of America, Opendoor and OfferPad to sell the house directly. Similar platforms are debuting where larger companies facilitate the transaction by teaming up with local investors who make the purchase and renovate.
While it’s unlikely that this platform will completely replace the traditional home selling process or the need for real estate agents, it’s becoming a popular option for sellers looking for a solution that better fits their situation and preferences. Ron notes that House Buyers of America was founded in 2001, so it’s been through different housing market cycles, and different needs for homeowners arise at different times.
In a market where demand is lessening, sellers may find that selling to a company rather than an individual buyer will make the process quicker and help them avoid issues, although the sale price is often less than what the house would sell for if placed on the market. But even when the market is hot and buyers are scrambling to make an offer, there will always be sellers who prefer an alternative to listing their property, Ron says. “People are looking for a hassle-free way to sell their home,” he says
New Construction and Development
Residential construction has been slowly rising in the years following the recession when construction came to a standstill, but housing starts still aren’t on pace to meet demand. The slow rate of new construction has contributed to rapidly rising prices in the last few years, particularly because most new construction has focused on high-end luxury homes.
“There really hasn’t been an expansion of affordable housing supply,” Liu says.
The start of 2018 saw a 10-year high for housing starts – the point when construction begins on a property – with more than 1.33 million housing units started in January nationwide, according to the U.S. Census Bureau.
Housing starts for the rest of 2018 haven’t reached past the January peak, however, and it’s possible interest rate increases are also restricting the construction industry. Developers and construction companies often rely on loans to complete projects, and with higher interest rates and less demand due to wary buyers, it’s possible construction won’t continue at the rate it needs to in order to keep up with new household formation.
There is a silver lining to a construction shortage, however: The housing market avoids a construction glut that overproduces, which can cause problems in a future economic downturn. “Normally you have an oversupply (of properties) – that’s what happened in the last crash,” Ron says.
Without an oversupply of housing and new construction, consumers have less to fear about housing prices in a future recession. Instead, the next recession would likely cause a dip in home values when unemployment rises, but the housing market would be able to recover much quicker.
Would-be first-time buyers who are apprehensive about mortgage rates or home prices may choose to stick to renting. In some markets, this could keep landlords happy without having to worry about increased vacancy due to lower demand.
But on the whole, renters benefit from declining rental demand. The U.S. Census Bureau reports the nationwide homeownership rate is 64.4 percent as of the third quarter of 2018, a consistent increase since homeownership rates reached 50-year lows – below 63 percent – in 2016.
“Almost all of the increase in household formation has come from owner-occupied housing,” Liu says.
Rising homeownership rates are good for renters, who have fewer fellow renters to compete with and may have more bargaining power when it comes to gross rent, concessions, free months’ rent or better amenities.
Rising income and low unemployment rates also give renters another step up. In a report from rental housing information site RENTCafé released in November, affordability of rental housing has increased significantly since the recession. In 2017, renters making the median income could afford 49 percent of all rentals in the U.S., compared to just 38 percent in 2011.
Like homeowners, renters should continue to save as much as possible while wages are up and the job market is strong in preparation for a time when affordability declines to ensure rent can be made on time in the more distant future.
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