We keep hearing that the spring real estate season is just around the corner, yet the April housing numbers came out showing a 4.4% decline from 2018 and continuing a downward trend of declining sales for the 14th straight month. What is driving this trend? What are real estate predictions for the remainder of 2019? What is the largest factor driving these changes?
At the same time housing is starting to swoon, mortgage rates have hit two-year lows with 30 year rates below 4% and ARMs as low as 3% substantially increasing affordability. Why are home sales not rebounding this spring season?
Here is what the National Association of realtors says:
“First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” said NAR’s Lawrence Yun. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.” (source CNBC)
Are the National Association of Realtors correct in their assessment?
Unfortunately there are two major flaws in the reasoning that home sales will rebound.
- Job creation improving causing wage growth: This statement is not holding water in our current economy. Although jobs have increased, wages have not increased meaningfully. How am I so certain? Inflation is basically non existent. This same theory has been used the last 4 years that inflation would pick up as more jobs were created. Unfortunately, this has not happened in the last 4 years and doesn’t appear to be happening any time soon.
- Consumer confidence: Consumer confidence was not referenced in their market assessment. Regardless of what is going on in the world, consumer confidence is the number one indicator for real estate. Real Estate is the largest single purchase for most households. As consumers feel more confident, they will trade up or buy another home. In today’s economy consumers appear to be on the fence. There are several variables that are influencing consumer confidence including geopolitical, the stock market, inversion of the yield curve, etc…
Prediction for the rest of 2019
- Consumer confidence takes a hit: Unfortunately, with all the variables influencing consumer confidence it is bound to happen that one of them puts a serious dent in how confident consumers are in the future. I’m not sure if this will come from trade woes, stock market decline, talk of a recession, business pullback due to uncertain conditions, or any of the other countless economic risks but consumers will start showing their nervousness by pulling back on large purchases like houses.
- Rates continue to stay low and/or drop even lower: For the remainder of the year, rates will stay very low and likely go even lower. Inflation continues to be nonexistent and the geopolitical risks far outweigh any inflation concerns. The bond market is already pricing in two cuts for the federal reserve later this year with more to come. I don’t see this changing anytime soon as we are the tail of the current economic cycle
- Home sales in most markets flat to slight declines: I don not see any meaningful rebound in the residential market. Inventory continues to increase which while at the same time demand remains flat. This should allow most markets to “take a breather” and end up flat to a slight decline.
- Higher price points will see a decline/substantial softening: The higher end of the market is the wild card. Higher end buyers react much quicker than average America in responding to changes in consumer confidence. I’m already seeing in Colorado’s ski town markets substantial slowing at the higher price points as wealthy consumers begin to pull back. I see this trend continuing and possibly accelerating which will lead to a decline in values on the high end side of the market.
2019 has shattered the market stability and is shaping up to be a bit more “exciting” than I had originally thought. Geopolitical risks are becoming a much larger factor along with changes in consumer and business confidence. Housing will feel the impacts of these changes the remainder of 2019 with softening values and more inventory. Now is the time to buckle up as the ride will no doubt get more interesting as we watch how consumer confidence begins to change and housing prices react accordingly.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).