This is the letter I sent out to my clients last week, with a summary of economic and other conditions in our housing market.
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Here is my fall Housing Market Snapshot. In general we have a viable market that continues to do the very best it can with the limited inventory, and that continues to out-perform the national economy as a whole.
I hope you find this round-up useful.
U.S. Economy and Housing Market, September 2019
Interest rates are heading back down as we speak. In 2018 we were on a course to be at 5% by last Christmas, and now NAR economist Lawrence Yun looks for the rate to level out at around 3.3% by end of year for a 30-year fixed mortgage.
National Economy
The Fed gives its reasons as a slowing of the economy from its last few years of expansion, and trade wars have brought much uncertainty to markets too. Whether this slowdown in economic activity passes the threshold to be called a recession, is debatable. Noted economist Robert Shiller gives it a less than 50% chance of recession in 2020.
As I reported in the spring Market Snapshot, homeowners expect a recession or correction of some kind coming eventually, but are confident in their equity position and their income, and don’t see any impact on houses.
Housing Market
For the housing market in general, prices and home values are unaffected, but activity may slow a little as economic uncertainty makes both buyers and sellers a little cautious.
Affordability is a factor in home buyer activity of course. Resale houses that are coming to market are typically priced at top dollar with the seller in a strong equity position and able to remain in the property unless the offer is strong.
But CoreLogic reports that bidding wars and offers above list price are no longer surging, and are falling back to normal levels – although still 10% more frequent than the norm of 2000. CoreLogic in another study expects home prices to gain 5.4% over the next year, which is a little above normal in my book, but the shortage of inventory almost forces this kind of gain.
New construction is still under-built, and a survey by the National Association of Home Builders reports that while affordability is a big factor in half of failed home searches, the lack of inventory means that 40 percent of failed searches are coming from not finding the right match. However, the majority of potential buyers report that they intend to keep on looking for as long as it takes.
Lenders continue to seek ways to make loans affordable for first-time and cash-strapped buyers, but without throwing risk to the winds. And in July a survey by Fannie Mae found a record high of Americans feeling good about buying a house. The Millennials are still very strong for homeownership, and they’re old enough now to have children – Generation Z – who are entering the mortgage market and nipping at their heels. Everybody wants to buy a home.
Trends
Everyone wants to buy, but the Baby Boomers don’t want to move. Americans in general are staying longer in their homes than ever before, and while many seniors look for new construction to downsize into, the new lifestyle of “aging in place” definitely seems here to stay.
People and homes are both adapting to demographic and social changes in America. People are sharing living spaces as never before, choosing smaller personal space such as tinier homes or shared communal amenities.
Younger generations are more inclined to choose sharing as a way to beat the inventory shortage. But within families, multi-generational living at all stages of life, so common throughout the world, is finally happening here, and families are finding it a good thing, as far as reports tell.
Home building and remodeling are both adapting to fit these new trends. Remodeling is typically a must for seniors contemplating living on for years in their same home and retaining homeownership independence. And new construction of single-family homes intended for rental is now typically of smaller homes and on smaller lots. This move-up market is having to stage more gradually into full home ownership.
Meanwhile we’re seeing numerous municipalities tweak their design codes to give increased leeway to traditional single-family residential zoning, allowing garage apartments and rental options where they didn’t exist before. While neighborhoods worry about these trends, especially with short-term rentals adding to the sense of transience, the sheer economic pressure on homeowners to make use of their equity seems an unstoppable force. And municipalities are finding it increasingly important to create affordable housing.
Energy-efficient homes and commercial buildings do recapture their investment in the resale and rental markets, according to several recent studies. Sustainability is something that Americans want, both in private and commercial use. Zero-energy use – something I study carefully since my own home is very green – commands a premium price in all the markets, I’m happy to say.
The Robots Are Coming!
One final trend to note is the arrival of the digital marketplace for homes. Federal regulators have increased the threshold that mandates a home be appraised by a human, from $250,000 to $400,000. This means that drone imagery and software algorithms can now potentially appraise most American homes for lending purposes – although most lenders will still require human valuations.
And online home-buying platforms such as Redfin and OpenDoor will give you quick cash for your home, but MarketWatch has measured the average price to be 11% lower than traditional markets, even including the agent commissions. A study by Collateral Analytics finds even lower results, at a loss of 13-15%.
The instant-cash offer for your home has always been around, as some real estate commentators are pointing out, as a small fraction of market activity. And not surprisingly Morgan Stanley projects a market share for iBuying platforms of only around 3% by 2030,.
So don’t worry, the robots are not that smart yet. One online tool that scheduled a property tour and unlocked a vacant home also opened the door, literally, for squatters to move in. Humans with badges had to come and take care of the situation eventually.
So it seems that we the people will still have some role to play in the housing market, at least until my next Snapshot in the spring!
© Stephanie Passman
