The housing market has experienced a lot of ups and downs in recent years. In 2017, a housing shortage made competition skyrocket, resulting in inflated price gains. A year later, the number of homes for sale hit an all-time low that lasted most of 2018. However, the first half of 2019 saw an upswing with the number of for-sale listings up 6.4 percent in January to 2.8 percent in June. While the second half of 2019 is not expected to be as detrimental as the 2008 housing market crash, buyers are expected to see a negative shift as supply begins to flatten and possibly decline come October.
Challenges in Affordability
Rising interest rates are making homes less affordable. Both short-term and long-term interest rates can have a direct impact on a buyer’s ability to afford a home. In the short-term, a rise in interest rates affects a buyer’s budget for a home. In the long-term, a rise in interest rates can result in higher monthly mortgage payments. Over the last several years, short-term interest rates have steadily increased which means homeowners must retain tighter budgets. When rising interest rates are combined with climbing home prices, affordability can become a major issue.
Slow Growth in Home Sales
In 2018, homes were less affordable meaning fewer people were buying. In fact, the number of homes sold last year declined about 10 percent compared to 2017. However, home prices are starting to rise again in the second half of 2019 at a slow but steady pace. While there has been much speculation about impending recessions, it is important to remember that the pillars of the economy remain strong and a slow climbing housing market does not necessarily mean we are going to experience another Great Recession anytime soon.
Fewer Homeowners Selling
In the second half of 2019, home sales are likely to remain low. There are a few reasons why fewer homeowners are choosing to sell. Rate-lock is a common concern for homeowners interested in moving. Many homeowners who chose to refinance their loans when rates were low would be stuck paying more for the same mortgage if they decided to move. Even if a buyer simply wanted to downsize, they would be met with a higher-priced housing market. More homeowners are also choosing not to sell and instead, opting to age in place.
Tighter Banking Restrictions
Tighter restrictions on banks and lenders has also made fewer buyers ineligible for mortgages. While placing these restrictions on home loans have led to a steady decline of people who are unable to pay their mortgages, it also means less homes are being purchased overall. However, research has found that more consumers are building stronger budgets than ever before. As income continues to grow and more people are choosing to save and pay off their debts, financial health has increased which is great for the housing market. Unfortunately, rising interest rates still makes it more difficult for interested buyers to afford a home.
Upper vs. Lower Housing Markets
While inventory has began to gradually creep up over the course of 2019, the market is not divided equally. The upper end of the market actually has plenty of inventory to choose from. It is the middle and lower ends of the market that are experiencing a housing shortage. The upper end of the market is being seen as soft due to a property tax deduction that has been limited, resulting in greater financial burden and less desire to own. New home builders are also feeling the stress due to rising material costs, high land prices, and more difficulty when obtaining construction permits.
What Does This Mean for Buyers and Sellers?
If you are a seller in the mid 2019 real estate market, you can expect less competition from buyers but the demand for homes remains strong. The demand for housing stems from a low supply of inventory across the country and the fact that more millennials are choosing to buy. Be careful when pricing your home as buyers are looking for less expensive homes due to a rise in interest rates. Overpricing your home could result in it sitting on the market for months.
As the number of homes for sales has increased slightly since 2018, buyers have more options in 2019. While buyers can expect a better value for these homes compared to previous years, they should not expect major discounts. Home prices are continuing to climb, just at a slower rate. First-time home buyers may struggle due to rising mortgage rates but programs are available to help with financing.
Help Buying or Selling a Property
Need help buying or selling a home in the current real estate market? Contact Katie Zarpas Group today to learn more about real estate market trends or for assistance with buying or selling.