(This is my September Bulletin, sent out to my clients last week)
Here’s my fall Market Snapshot, a brief overview of the housing market, especially as it relates to Florida. There have been no dramatic changes since my spring Snapshot – which you can review at my website here.
The housing market continues towards being a more balanced market. Activity is slower than everyone would like, but transactions proceed now in a stable fashion, and the national economy is gaining in strength, with incomes continuing to rise gradually. Everything is inching forward.
Equity
The latest Case-Shiller index reports home prices rising by 6.3 percent in June of 2018 compared with a year previously. This is double the increase in incomes, which makes it hard to sustain. And with home prices now at their highest ever, the rate of gain has started to slow a little. We’ve been seeing this for at least a year in certain markets, and overall now we’re starting to see the market head towards gains more in line with normal appreciation.
How about a buyer’s market? Two out of three economists expect the housing market to shift again from a seller’s to a buyer’s market by 2020, according to a 2018 Q3 survey. We saw the last buyer’s market shift to the current seller’s market in early 2012 when distressed inventory started to give way to real homes for sale, chased by too many buyers.
This has already started to normalize, as buyers realize they have options too, one of which is to stay in their current home – and for one segment of the market, the demographic trend of aging coupled with downsizing continues to be delayed into later years than previously. Inventory is still very tight, but it will ease over time, especially as new builds and new buyers both remain strong.
Home buyers are generally home owners also, and homeowner equity positions are generally positive. That said, home-equity loans have been booming and are expected to continue, but homeowners are using the money principally to upgrade their property.
They’re also using that money to invest in income-producing ventures, one of which may be a second home as a rental. Many owners of vacation homes in Florida are increasingly using these homes as short term rentals (and I wrote about how this works in St. Petersburg last month). Now a report compares the 1970s, when 9 out of 10 owners kept their second homes to themselves, to today, when two-thirds of these owners want to rent their second homes out.
First Time Buyers
What about those first-time buyers? Even against tougher conditions, they are prevailing against multiple headwinds. People just want to own a home.
First-time home buyers in the first half of this year were the greatest number – almost a million – since 2005. Analysts are commenting on the determination of the young generation to become homeowners. Millennials face higher interest rates, higher home prices, and student loan debt. And their credit scores are not as great as they might be, although FHA loans are helping.
What seems clear is that first-time buyers have had to pause momentarily to catch their breath and re-calibrate the speed needed to jump on the moving train, but many of them have done it, and are getting on board, and more will follow. Good for them. Well done!
The Outlook
Builders are confident in the market for new homes. Labor shortages and materials costs are killing them, but the need for new inventory is a clear economic market. Buyers are standing in line.
The Fed is playing a see-saw game with interest rates, but note that mortgage rates have been climbing behind the smoke and mirrors, now at almost a point higher – 0.082% – than a year ago. The Fed has signaled that they will continue up, although rates may not meet Lawrence Yun’s forecast of 5% by end of 2018.
What else does Lawrence Yun, NAR’s own economist, see for the future with housing? Overall he sees that builders are the answer to the seller’s market, and with first-time buyers surging, this will temper the excessive rise in resale home prices.
It’s a housing market increasingly moving towards balance. Everything is inching forward, as someone said.
— Stephanie
