2019: The Year of the First Time Homebuyer
As the hip kids say, “What a time to be alive!” Here at the start of 2019, we’ve been reflecting on both the US economy and the housing market in 2018, and what a year it was. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market.
In an op-ed published in Inman, Chief Economist Matthew Gardner at Windermere Real Estate, gives his crystal-ball predictions for 2019 and outlines why 2019 will be the year of the First Time Home Buyer. Here, we’ve pulled excerpts from his predictions, with added commentary summarizing some of our (the Two Door Group’s) readings and interpretations of the Chicago housing market and US economy.
TL;DR: TWO DOOR GROUP KEY TAKEAWAYS
Don’t let headlines alarm you: There are voices and flashy headlines out there that suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating. In all the data, we don’t see this happening. Credit quality for new mortgage holders remains very high, and the median down payment (as a percentage of home price) is at its highest level since 2004.
Balanced Market Price Reset: Where markets are overvalued (read: overpriced), does not automatically mean a bubble is in place. Rather, it means a price-adjustment will take shape or that forward price growth in these markets will be slower to allow income levels to rise sufficiently.
It continues to be a great time for first-time buyers. While first-time buyers often face challenges regarding student debt and the ability to save for a down payment, they are poised to purchase more homes this year than any other demographic. With unemployment at at record lows, attainable mortgage rates, and a balanced market taking shape, it’s a great time to purchase (or trade-up) your home.
For more, see our related market analysis article: Housing Bubbles and Recessions are not the same thing.
MG: THE US ECONOMY
Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.
Firstly, any cyclical downturn will not be driven by housing. I believe it will likely be caused by one of the following three things: (1) an ongoing trade war, (2) The Fed raising interest rates too quickly, and (3) excessive corporate debt levels.
MG: THE HOUSING MARKET
Home Prices: We will end 2018 with a median home price up 5.4 percent from 2017 nationally. In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m 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.
New & Existing Home Sales: New-home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9 percent to 695,000 units — the highest level seen since 2007. That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor and material costs, and this is an issue that is not likely to be solved in 2019.
Mortgage Rates: The average 30-year conforming rates measured at 4.87 percent in November 2018. In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or leveling. We will likely end the year with the 30-year fixed rate at around 5.7 percent, which means that 6 percent interest rates are more apt to be a 2020 story.
I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.
Matthew Gardner is the Chief Economist for Windermere Real Estate, the second largest regional real estate company in the nation. His Op-Ed appeared in Inman on Dec 18, 2018.