In 2018, rates began rising to their highest point in nearly eight years, housing prices started losing momentum, and the housing market began its shift from a seller’s market to a buyer’s market. What should you expect as a buyer, seller, or investor in 2019? We’ll cover the most impactful real estate trends to be aware of in 2019.
1. Rates on The Rise
Although rates have not yet reverted back to the dark days of the 2008 recession, we’ll certainly continue to see a rise in interest rates in 2019. According to Aaron Terrazas, Director of Economic Research for Zillow, he says, “Despite steady climbing for the past two years, mortgage rates remain lower than they were during most of the recession and below average for the type of strong economic growth we’ve been experiencing. That will change in 2019, as the 30-year, fixed rate mortgage reaches 5.8% — territory not seen since the dark days of 2008 when rates were racing downward in response to the housing crisis.”
2. Your Buying Power Will Decrease
Chief Economist for Lending Tree, Tendayi Kapfidze, gave some valuable insight regarding the buying power of prospective homeowners affected by this trend in 2019. He goes on to say that, “Most homebuyers budget a monthly payment. As rates rise, a fixed monthly payment translates into less borrowing capacity and buying power is down about 10% since the same time last year. As there are less buyers at each price point, the appropriate market response is a slowdown in sales and an easing in price momentum.”
3. A Drop in Overall Home Sales
Analogous of a domino effect, rising interest rates cause a slow-down in home sales. According to Chief Economist, Ruben Gonzalez of Keller Williams, home sales are anticipated to decline. Gonzalez says, “As we look toward 2019, we are anticipating home sales to decline around 2%. We’re expecting it to be another slightly slower year as buyers continue to wrangle with higher mortgage rates after contending with several years of rapid price growth.”
4. Millennials Continue to Lead the Market in Home Buying
There’s no doubt that Millennials purchase the most homes currently, but what’s interesting is that this trend will continue to gain momentum. Last year in 2018, Danielle Hale, Chief Economist for Realtor.com explained the following projections:
“Millennials will continue to make up the largest segment of buyers next year, accounting for 45% of mortgages, compared to 17% of Boomers, and 37% of Gen Xers. While first-time buyers will struggle next year, older Millennial move-up buyers will have more options in the mid-to upper-tier price point and will make up the majority of Millennials who close in 2019. Looking forward, 2020 is expected to be the peak Millennial home buying year with the largest cohort of Millennials turning 30 years old. Millennials are also likely to make up the largest share of home buyers for the next decade as their housing needs adjust over time.”
Although first-time millennial home buyers may struggle with rising interest rates and decreased buying power, it won’t stop this rising trend. Senior Economist for First America, Odeta Kushi explains why.
“The housing market in 2019 will be characterized by continued rising mortgage rates and surging millennial demand. Rising rates, by making housing less affordable, will likely deter certain potential homebuyers from the market. On the other hand, the largest cohort of millennials will be turning 29 next year, entering peak household formation and home-buying age, and contributing to the increase in first-time buyer demand.”
— Danielle Hale, Chief Economist for Realtor.com
5. Inventory Issues Will Improve … Slightly
No matter how slight, this long awaited trend has been highly anticipated in many low-inventory markets. Both agents and home-buyers in these markets will embrace these small gains in 2019.
“The wave of first-time home buyer demand will be met by somewhat higher inventory levels than in 2018. However, while the days of multiple offers and bidding wars may be history in some markets where inventory is increasing, inventory will likely still remain tight nationally through 2019.” — Kushi
With inventory issues slightly improving, a slow-down in home appreciation values is expected. “Right now, for 2019, we believe home price appreciation will likely slow to near 3%. This is based on the assumption that the recent pattern of increasing inventory levels will be sustained in the upcoming year.” — Gonzalez
“In the majority of markets, the number of homes being put on the market or newly constructed has increased slightly, while the pace of sales has slowed slightly, which has helped stop the inventory decline. But the inventory increases or slowing price increases necessary for a more widespread sales gain are not forecasted to happen in 2019. While the situation is not getting worse for buyers, it’s also not improving notably in the majority of markets.” — Hale
6. Less Competition for Buyers
While the era of bidding wars and multiple offers may still be going strong in many markets, decreased buying power and higher price points, will result in less competition.
“Buyers who are able to stay in the market will find less competition as more buyers are priced out but feel an increased sense of urgency to close before it gets even more expensive. Their largest struggle next year will be reconciling wants, needs and budget versus the heavy competition of 2018. Although the number of homes for sale is increasing, which is an improvement for buyers, the majority of new inventory is focused in the mid- to higher-end price tier, not entry-level.” — Danielle Hale, Realtor.com
7. Rents Rise Nationwide … YES, in NYC Too!
When you thought New York City rents couldn’t get any higher, think again! The impact of Amazon’s HQ2 will impact the NYC real estate market. However, that’s not all, Andrew Barrocas, CEO of MNS explains:
“Overall, I think the beginning of 2019 will be relatively flat, with price increases in Q3, Q4 and into 2020. The period between the old 421A and the beginning of affordable New York was a window of time where there wasn’t a tremendous amount of rental development. During that time it was difficult to build rental developments due to the escalating land and construction costs, no tax incentives, etc., creating a shortage of new product. Today, not only have some regulations changed, but the economy is doing well, unemployment rates are down, a lot of jobs are being created here in New York – not only by Amazon but everything that comes along with Amazon and all of the corporations looking to be close proximity to their headquarters. When we see the economy doing well, we can expect rental prices to increase.”
Terrazas of Zillow goes on to add, “As higher rates limit the number of homes that potential buyers can afford, some would-be buyers will be too financially stretched to buy and will continue renting. As a result, recent (and very slight) drops in rent will reverse and turn positive again. The shift will be muted, however, by continued steady investment in apartment construction, which will prevent rent growth from shooting too far above income growth.”
8. Tale of the Two Investors – Individual vs. Institutional Investors Compete
Trends this year don’t seem to favor the “little guy”. According to Brian Spitz, founder of Big State Home Buyers, “Well-funded institutional buyers have tremendous advertising budgets and their spend makes it impossible for the average real estate investor to compete. It takes a serious financial investment to fund a marketing campaign that accurately targets and identifies acquisition opportunities. That alone gives institutional investors an instant advantage. Additionally, interest rates are increasing, which not only impacts buyers who cannot afford to move, but also individual investors looking to borrow money to buy and hold rental properties. Their cost to borrow increases while inventory decreases and competition grows. This type of combination middle-market is one individual investors do not want to see.”
9. Commercial Shared Space is a Growing Trend
If you’re a commercial landlord or property manager and you’ve not jumped on this trend yet, it may be an innovative way for you to improve your asset, business, and occupancy rates in 2019. Julien Bonneville, CEO of The Guarantors explains the demand in this area.
“As co-working continues to be a disruptor in commercial real estate, the largest traditional landlords have opened their own flexible and co-working options to compete, such as Sage Realty’s Swivel and Boston Properties’ Flex. Landlords who are remaining or returning to the traditional commercial office space are facing increased demand for amenities like sleek lobbies, tech services, etc. To meet these demands and gain a competitive edge, landlords are opening up to fintech/insurtech solutions like replacing security deposits with surety bonds to make tenants lives easier.”
10. Tech Continues to Be an Industry Disruptor
If you’ve not jumped on the tech train yet, it’s about time you do. Those that don’t will get left behind. Innovation is here to stay and Spitz explains why it’s important that you embrace the trend. “Technology disruption of the real estate industry driven by Silicon Valley and institutional investors will reach a point where it’ll threaten the traditional real estate industry. Technological innovation is here and rapidly advancing in the real estate industry and preparing for disruption. iBuying, blockchain, artificial intelligence and machine learning are changing the ways buyers, sellers and investors interact with each other and the properties they are interested in.”
As an Asset Strategist, my focus is on strategically enhancing the value of my client’s real estate assets. Read my analysis of real estate trends Globally and in the Chicago region. Opinions are all my own.
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