The 2019 housing market: If it’s not another crash, then what can we expect?
If you’re reading this, chances are you’ve read the first part of this guide which covered how historical trends are influencing prices in today’s market. Haven’t check it out yet? You can find it here.
Not interested in gazing into the future? Curious to know what all this means for buying or selling now? Check out Part 3.
Here’s a brief recap of the housing crash in 2008:
The Subprime mortgage crisis led to a record decline in home values, about 30 percent (that’s a lot). This led to a record number of foreclosures, which contributed to the Great Recession.
In real estate, we often use the term hard landing vs soft landing to describe how home prices are expected to fall. In a soft landing, prices gradually slow down, and in a hard landing prices fall rapidly. 2008 was the hardest of landings for home values.
So why is 2019 different from 2008? What can we expect to happen?
Consumers have stronger budgets. Banks too.
Risky lending practices were a major contributor to the subprime mortgage crisis, and there are now tighter restrictions on lenders and banks. As a result, the number of people unable to pay their mortgages has been in steady decline. This is also because consumers have better finances.
“Household budgets are the strongest they’ve been in 40 years and a far-cry from 2008.”
According to Forbes, household budgets are remarkably healthy: income is growing, people are saving at a higher rate, and incomes are outpacing debts.
A good sign of financial health is spending less disposable income on repaying debts like a car payment, credit card, or student loans. Today, household budgets are the strongest they’ve been in 40 years and a far-cry from 2008.
The fact that more people have room in their budgets to responsibly take on debt is good for housing demand. But remember, interest rates have been increasing, making it harder to afford a home.
Because we’re looking healthy in 2019, rates may continue to go up.
The current fed funds rate is projected to rise, and Freddie Mac expects mortgage rates to end the year at 4.9%. It’s important to keep in mind that even though mortgage rates increased in 2018, they are still historically low. Look at how they compare to the early 2000’s and how about the early 1980’s!
But rate hikes aren’t written in stone.
The Fed is constantly checking the health of the economy, and its attitude can change. Many were surprised when the Fed chose not to raise the fed funds rate at the beginning of the year, signaling that it was satisfied with the current pace of economic growth.
“It’s difficult to predict how the Fed will adjust rates, but what we can anticipate is the impact.”
Rising short-term rates means home buyers may have less money to spend. On top of that, the larger monthly payments that come with higher mortgage rates can make buying a home more challenging, especially for first-time homebuyers.
Let’s look at what affordability looks like across the country. The map below shows the percentage of people in each area who can afford the median home price with the median income. The higher the percentage (in blue), the more affordable the market.
In a nutshell: Home prices may slow in 2019 but expect a “soft landing”.
The National Association of Realtors is expecting the median home price to increase roughly three percent in 2019. They also expect home sales to increase one percent year-over-year. In other words, slower growth but growth nonetheless.
Here’s how NAR chief economist Lawrence Yun summarized these trends in their 2019 forecast:
“Ninety percent of markets are experiencing price gains while very few are experiencing consistent price declines… 2017 was the best year for home sales in ten years, and 2018 [has been] a very mild adjustment compared to the long-term growth we’ve seen over the past few years. This is a stronger, more stable market compared to the loosely regulated market leading up to the bust.”
Slower growth in home prices isn’t always a bad thing; it can enable more people to enter the market. The Fed also wants the economy to grow at a steady pace to prevent a “hard landing” down the road.
“What matters most are the fundamental strengths of the economy…”
What matters most are the fundamental strengths of the economy like low unemployment, healthy consumer finances, and responsible lending practices. This is what keeps home prices stable as supply and demand fluctuate locally.
While the housing market is impossible for anyone to predict, many economists expect a soft landing for home prices in 2019.
Now that we’ve examined past market trends and looked ahead to those of the future, we’re ready to explore what this means for buyers and seller. Click here to read the rest of the market trends guide and find out what that means for those ready to make some real moves.
