Now that we’re halfway through 2019, it’s time to reassess our current housing market and adjust our housing market predictions for the rest of the year. But first, let’s review current national trends in real estate.
National Real Estate Market Trends
Noted real estate analyst Steve Harney in a recent mid-year interview characterized the current national real estate market as normal.
“It’s a Goldilocks market,” he said, “not too hot, not too cold. Prices are settling, and we’re beginning to see more inventory.”
He observes that conditions are not like 2008, where we had 9.5 months of inventory. Currently, we have half that, so the market is in much better shape.
Home Price Appreciation Next 12 Months
Harney expects appreciation to be a little higher than the historic norm of 3.6%.
Since the housing crash, appreciation has been running at 6-7% and even 13-14% in some markets as prices recovered.
Originally, the economic consensus for 2019 was 3.6-3.7% home price appreciation. But in the last few months, the experts have adjusted their expectations, most predicting it will be over 4% average.
Sources include the Home Price Expectation Survey, Zelman & Associates, Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors.
For younger buyers who’ve never seen a normal market, they’re likely to experience similar appreciation to what their parents or grandparents may have seen in their lifetimes, but not as much as the sibling who bought two years ago.
For most sellers, this means you have to be careful with pricing. In the past, you could test the market with higher prices because appreciation was enough to cover the gap. Now, appreciation is weaker, so you need to price more competitively.
Luxury Home Market Considerations
Luxury home sales have slowed in many parts of the country, so pricing is trickier in this category this year. Sellers need to look at the various luxury segments to know how many months of inventory are in each price band.
The lower end of the luxury market will most likely have lower available inventory, with a national average of 6 months. If you have more than 6 months of inventory, there are too many homes for sale, and sellers will need to price competitively. If you want to sell, your price must compel.
In the upper end of the market, you’ll typically find more months of inventory, along with sellers willing to wait longer to sell their properties.
For sellers, it’s also important to understand that what you hear in the national market is one thing, but what’s happening in your local market in your price range can be completely different. That’s why it’s important to confer with a local professional.
Home Sales Trends for 2nd Half of 2019
Last fall, the national market softened after a strong start in January 2018, with interest rates rising through the year.
Steve Harney predicts that 2019 will be the reverse. Interest rates have lowered and demand is up again from a weaker start.
NAR just recently reported that existing home sales up are up 2%, so we expect to gain momentum through the summer into fall.
“Not having enough inventory at the lower end,” Harney said, “is the one thing that could throw a wrench into it.”
Compelling prices on the high end should trickle down to the middle tier, as perceived good deals motivate first-time sellers to move up. This will make room for first-time buyers to get the market moving again in the affordable price range.
Interest Rate Predictions 2019
With the lowering of interest rates this spring, lending activity has picked up. Mortgage agency Freddie Mac said that average 30-year mortgage rates hit 3.82% in June, the lowest level in nearly two years.
Refinance applications also jumped 47% week-over-week recently according to the Mortgage Bankers Association.
Will the Fed raise rates this year? There are so many factors manipulating this, it’s hard to say. Our best guess, however, is not any time this year.
Interest rate forecasts for 2019 put rates somewhere around 4.4% by the end of the year, according to The Mortgage Reports. That’s down from forecasts earlier in the year that called for rates in the fives.
Millennial Home Buyers 2019
Millennials are moving the needle. Eight of the nine last quarters show homeownership on the rise, and the percentage ownership among Millennials is the greatest it’s ever been. They delayed everything—moving away from parents, moving to urban centers, marriage, kids, moving to the suburbs. It’s all happening later.
Millennials commonly cling to old beliefs about homeownership. For example, many think they need 20% down to buy a property, unaware of other options.
Many are also waiting for rates to go back down to 3% from 4% before making a move, thinking rates are too high. Yet these are the lowest rates in modern history, so they need to understand historical context when making their decisions.
Real Estate Investor Impact
CoreLogic recently released a report stating that 11.3% of all home purchases are made by investors.
The conventional notion is that institutional investors are buying huge amounts of rental housing stock, siphoning it away from individual buyers.
Actually, these investors who buy over 1000 properties per year are falling off, according to data analysis by Keeping Current Matters.
Professional investors who purchase 100-1000 properties per year are also reducing their purchase activity.
The category that’s skyrocketing is the mom and pop investor who buys 1-10 houses per year, many of them to fix and flip. So if you’re an individual investor looking to make a move in that market, you’re in good company.
Housing Prices in the Next Recession
Compiling results from the Wall Street Journal Survey of Economists, Duke University’s Survey of American CFOs and the National Association of Business Economists, 60% of experts believe we’ll have a recession within 18 months.
As this news becomes more mainstream, expect the headlines to go ultra-negative, especially coming into an election year because negativity sells.
Yes, in our last recession, prices dropped almost 20%. But that was because the housing industry was the primary cause of the recession.
Looking at the four previous recessions, however, only once did prices go down, and then it was less than 2%. In three of them, prices went up, and in two, they went up over 6%. So a recession doesn’t guarantee price drops.
Most of the same experts aren’t predicting a housing crash, but they do expect a slowdown to more normal appreciation levels in the low 4% range.
Please note, it’s important to understand the term recession. We are technically in a recession when the Gross Domestic Product slows down for two consecutive quarters.
When the average person says recession, they’re thinking 2008. When economists say it, they mean two consecutive quarters. Currently, the American economy is on its longest-running recovery in history.
Harney expects the housing market to remain normal throughout the next recession. Noted economist Morgan Housel sums it up saying that this recession may come and go, and we may not even know it.
A normal housing market is good for getting buyers and sellers to move due to less uncertainty. In fact, 44% of people surveyed would like to make a move now according to Nerd Wallet’s 2019 Homebuyer Survey.
Bottom Line: In the next six months, we’ll likely see a stronger finish after a slow start, with a recession perhaps by fall 2020. The housing market should remain normal throughout this period, making it a good time to act while interest rates remain low.
Reno-Sparks-Carson Real Estate Market Trends 2019
The local economy continues to show strength as new companies relocate to our region to take advantage of Nevada’s business-friendly climate. This is putting pressure on the housing supply, especially homes in the affordable price range.
Against this backdrop, the Reno-Sparks real estate market saw a small decline in sales the first half of 2019. Overall sales volume dropped 4%, and the number of homes sold dropped 6%.
Million-dollar home sales stayed fairly flat with a 4% decrease from last year. The number of homes sold for under one million dollars declined by 6%.
These figures are part of a mid-year report recently released to our clients and associates. The data compares all MLS homes sales from January 2, 2019, through June 30, 2019, to the same timeframe in 2018.
Regional median home prices saw a 2% increase to $380,000.
Carson Valley home sales volume was up 3%, while median home prices rose by 5% to $430,000.
Condo sales saw a robust increase of 23% volume sold and an uptick in units sold by 13%. Median prices were up 16% to $230,000.
In Carson City, condo sales were also up by 47% in volume sold and 11% in units sold. Median prices were up a whopping 21% to $199,450.
“Overall we’re seeing an increase in inventory in the last few months,” said Susan Lowe, Corporate Vice president of Chase International. “This is providing buyers more options in the Reno-Sparks region.”
Bottom Line: With a strong local economy, the cost of borrowing coming down and the Fed backing off rate increases for now, we should see increased activity heading into the latter half of the year, especially in the affordable price range.
Lake Tahoe Real Estate Market Trends 2019
Our primary feeder market, the San Francisco Bay Area, continues to show strength with a substantial number of IPOs launching this year. Some of this newly-minted wealth will likely end up invested in Lake Tahoe vacation properties.
While many buyers will wait months before selling stock due to lock-up periods, others may go ahead and secure lending against their vested stock options, enabling opportunities to purchase now.
After a very long winter, the first six months showed a slow down for the Lake Tahoe real estate market. The area saw a 20% decline in volume sold, and a 12% decline in units sold.
The lakewide median home price increased 2% to $689,068, while sales over a million dollars were down by 5%. The number of homes sold for under one million dollars declined by 15%.
Home sales for over one million were up by 11% in South Lake Tahoe and up by 13% on the East Shore. Incline Village saw a 6% decrease in home sales, and Tahoe City saw a decline of 24%.
Condo sales were down across the board with a 20% decrease in volume sold, 14% in units sold, and 7% in median price. The East Shore was the only community to see an increase in median price to $451,000, up 17%.
Sales also softened in the Truckee market with a 17% decline in volume sold, a 13% decline in units sold, and a 4% increase in median price to $765,000. Sales over one million dollars were down by 21%.
“The heavy winter slowed sales around the basin,” said Susan Lowe, “But we’re seeing an uptick in interest and offers, which should result in a strong second half of the year.”
Bottom Line: As the west and north shores cool slightly, buyers will find more opportunity to negotiate with sellers, and sellers will need to take care with pricing. On the east and south shores of the lake where prices are generally lower, buyers should be prepared to compete, and sellers have some leeway to test the market with pricing.
See the full market report: