We are inching ever closer to the new year and with it comes a slough of predictions from experts within a variety of fields. Inman pulled out their crystal ball with an op-ed written by Matthew Gardner, chief economist of Windermere, who calls 2019 the “Year of the First-Time Homebuyer.”
Though the ongoing trade war with China is contributing to a turbulent global market, the U.S. economy is still expected to have another year of solid growth in 2019. Gardner does warn that we are likely to enter a recession in 2020, but that “before you panic, there are some important things to bear in mind.”
Most importantly, a cyclical downturn will not be driven by the housing market, as was the case in 2007 to 2008. While it is near impossible to predict what could set off a recession, Gardner is putting his money on one of the following: 1) the aforementioned trade war with China, 2) the Federal Reserve raising interest rates too quickly or 3) excessive corporate level debt.
All that said, Gardner sees 2019 as a fruitful year and recommends we continue to think about the coming year — and avoid worrying to heavily about the future — for now.
Housing Market Trends
Based on year-to-date data, Gardner predicts the year will close with a 3.5 percent decline in home sales versus 2017, but anticipates “that home sales will rebound mostly and rise by 1.9 percent to a little over 5.4 million units.”
The nation is likely to end the year with a median sales price up by 5.4 percent compared to 2017. In 2019, prices will continue to rise but at a slower rate. Gardner is forecasting “the median home price to increase by 4.4 percent as rising mortgage rates continue to act as a headwind to home price growth.”
As was the case in resale home sales, new home sales began to slow down in spring 2018, however the overall trendlines have remained positive for the past seven years. We can expect that trend to continue in the coming year, with an approximate 7 percent increase — to 695,000 units — the highest number since 2007.
While new construction is increasing, it is still far below the long-term average. Land, labor and material costs have been a struggle for builders and it is a problem not likely to find resolution in 2019.
In the coming year, Gardner expects “interest rates to continue trending higher,” but says we could “see periods of modest contraction or leveling.” By the end of 2019, the average rate of a 30-year fixed rate could be around 5.7 percent, meaning the probability 6 percent interest rates will likely be a 2020 conversation.
While some have expressed fears regarding another housing bubble, Gardner says that with all the data he reviews, he just doesn’t see it happening. A key to this is that new mortgage holders have very high credit and the median down payment on a home is higher than it has been since 2004. If anything, the higher-priced markets (such as Seattle) are likely to experience not so much of a bubble burst, but of a slowdown in growth while wages catch up to median home prices.
Finally, Gardner says first-time homebuyers will remain key players in the housing market in the coming year. “While these buyers face challenges regarding student debt and the ability to save for a down payment,” he writes, “they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.”