National Real Estate Market Snapshot [September 2019]
The U.S. unemployment rate is at a 50-year low, and consumer confidence remains high. In fact, the University of Michiganโs latest Surveys of Consumers found that Americans have their most positive personal finance outlook since 2003.1
However, if you follow national news, youโve probably heard speculation that we could be headed toward a recession. Global trade tensions and a slow down in the GDP growth rate have sparked volatility in the stock market, leading to economic uncertainty.
Given these differing signals, you may be wondering: How has the U.S. housing market been impacted? Where is it headed? And more importantly โฆ what does it mean for me?
MORTGAGE RATES ARE NEAR HISTORIC LOWS
In August, Freddie Mac reported that the average 30-year fixed mortgage rate hit its lowest level since November 2016, falling to 3.6%, down a full percentage point from a year earlier.2 Variable mortgage rates also fell when the Federal Reserve cut interest rates at the end of July for the first time since 2008.3
This was welcome news for many in the real estate industry. Freddie Mac predicts that low-interest rates and a robust job market will help the housing market remain strong despite the threat of recession.
โThere is a tug of war in the financial markets between weaker business sentiment and consumer sentiment,โ said Sam Khater, Freddie Macโs chief economist. โBusiness sentiment is declining on negative trade and manufacturing headlines, but consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall.โ2
What does it mean for you?
If youโre looking to buy a home, now is a great time to lock in a low mortgage rate. It will shrink your monthly payment and could save you a bundle over the long term. Or if you plan to stay in your current home for a while, consider whether it makes sense to refinance your mortgage at todayโs lower rates.
PRICES CONTINUE TO RISE AT A MODEST PACE
According to the S&P CoreLogic Case-Shiller Indices, housing prices continue to rise. But the rate at which prices are rising is slowing down. For May 2019, the National Home Price Index rose by 3.4%, down from 3.5% the previous month.4
Of course, national averages often donโt present the whole picture. Some markets have seen modest declines, while other areas are witnessing double-digit increases. The key differentiating factor in most cases? Housing affordability.5
Since 2012, home prices have increased at about three times the pace of wages, according to National Association of Realtors chief economist Lawrence Yun.6ย
โHousing unaffordability will hinder sales irrespective of the local job market conditions,โ said Yun. โThis is evident in the very expensive markets as home prices are either topping off or slightly falling.โ5
But what about all this talk of a recession? Will we see housing values plummet as they did in 2008? Economists say no.
A large decline in national home prices is unlikely in the next recession.
If we look at history, the real estate crash experienced during the Great Recession isnโt typical.
The recent Housing and Mortgage Market Review report from Arch Mortgage Insurance provides data to support this. โWhat we found is that the next recession is likely to be far less severe on the housing market than the last one. Itโs not that this time is different; itโs that last time was really different from historic norms.โ6
โA large decline in national home prices is unlikely in the next recession,โ Arch economists write. โA persistent housing shortage should help cushion home price declines.โ6
What does it mean for you?
If you have the ability and desire to buy a home now, donโt let the threat of a recession hold you in limbo. The market is cyclical, and it will experience ups and downs. But over the long term, real estate has consistently proven to be a good investment.
STARTER INVENTORY REMAINS TIGHT WHILE LUXURY MARKET SOFTENS
As weโve seen in the past, itโs become a tale of two sectors.
The low-end of the market remains highly competitive as buyers compete for affordable housing. A lack of new construction during the last recession led to an undersupply of starter homes. This trend continuesโdespite growing demandโdue to a lack of skilled workers, rising land and material costs, and a slow permitting process in many areas.7
The result? Thereโs a shortage of homes for sale that Americans can actually afford to buy.
If you’re selling an entry-level home, you’re probably still looking at a pretty competitive market in most places.
The luxury market, on the other hand, has softened. Economic uncertainty, changes to tax laws, and rising prices have slowed demand. Plus, to recoup their higher costs, builders flocked to this segmentโcausing an overabundance of supply in some areas.
โIf you’re selling an entry-level home, you’re probably still looking at a pretty competitive market in most places,โ according to Danielle Hale, the chief economist at Realtor.com. โBut if you’re selling a more expensive home you probably have to adjust your expectations.โ8
What does it mean for you?
Move-up buyers, youโre in luck! If youโre ready to trade in your starter home for something more luxurious, you may get the best of both sectors. Weโre still witnessing strong demand for entry-level homes, giving sellers the upper hand. At the same time, buyers of high-end homes are finding a greater selection (and more negotiating power) than theyโve had in years.
INVESTORS ARE BUYING HOMES AT RECORD LEVELS
Thereโs one group that hasnโt been slowed down by lack of affordability or economic uncertainty: investors.
According to CoreLogic, investors are purchasing homes at a record pace. In 2018, the share of U.S. homes bought by investors reached 11.3%โthe highest level since the company began tracking nearly 20 years ago.9
With declining mortgage rates โฆ [investors are] searching for a better return for their money.
Notably, this increased activity wasnโt led by institutional investors, but instead by small and individual investors focused on the starter-home segment.7 Declining interest rates and an uncertain stock market have led investors to flock to real estate as they seek out greater stability and higher returns.
โWith declining mortgage rates โฆ theyโre searching for a better return for their money,โ said NAR chief economist Lawrence Yun.10
What does it mean for you?
If youโre looking for a way to โrecession-proofโ your money, you might want to consider investing in real estate. People will always need a place to live, and (unlike the stock market) a rental property can provide a steady source of cash flow during uncertain economic times.
WEโRE HERE TO GUIDE YOU
While national real estate numbers can provide a โbig pictureโ outlook, real estate is local. As local market experts, we can guide you through the ins and outs of our market and the issues most likely to impact sales and home values in your particular neighborhood.
If you have specific questions or would like more information about how market changes could affect you, contact us to schedule a free consultation. Weโre here to help you navigate this shifting real estate landscape.
Call Libby at (925) 628-2436 or send us an email at info@guthriegrouphomes.com
Sources:
- University of Michigan Surveys of Consumers
- Freddie Mac
- CNN
- S&P Dow Jones Indices
- National Association of Realtors
- Forbes
- CNN
- Forbes
- CoreLogic
- Fox Business
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