Long & Foster Real Estate general brokerage Presidents Gary Scott and Larry “Boomer” Foster hosted a Facebook Live stream yesterday. The executive duo noted key 2018 tailwinds, addressed the buzz regarding 2019’s most talked about challenges - interest rates and inventory - and highlighted potential opportunities for the year ahead.
Foster began with the current strength of the U.S. economy, backed by figures including November’s job growth at 155,000 new jobs, a historically low unemployment rate at under 3.7 percent, modest wage growth at a hair above 3 percent, and Q3 GDP at 3.5 percent.
He pointed out the silver lining of the volatile stock market: Consumer sentiment remains high, at about 98 percent, according to the University of Michigan Index of Consumer Sentiment. There is typically an inverse relation of consumer sentiment to a stock market index with such sharp peaks and valleys.
“A ton of tailwinds, economically, going into next year. Normally, when you see these things coming together, you expect to see a robust real estate market [in the year ahead]. But, we’re going to talk about specific things that might create some headwinds and have a realistic look at what 2019 will hold,” Foster segued to Scott.
Scott began by contrasting 2018 tailwinds with potential 2019 headwinds - increasing interest rates and inventory shortage. “We predicted interest rates would grind higher over the course of the year, which they have. We have to keep it in its proper perspective - 4.75, 4.62, 5.1 [percent] - are very, very attractive interest rates. What we know from a historical perspective about interest rates is that a little threat, or tick up, oftentimes stimulates and triggers the housing market.” Scott and Foster nodded in unison, agreeing that 2019 will continue with attractive interest rates, although likely north of 5 percent.
Current international issues such as Brexit and trade tariffs reflect an uncertain world market. In the past, this uncertainty has steadied rate increases. Foreign and domestic investors begin parking more of their money in US Treasury bonds, perceived to be a safe investment. Treasury bonds track inline with 30 year fixed rates; as more money is pumped into bonds, yields on the these notes go down, as do 30 year fixed rates.
Despite three years of contracting inventory, Foster and Scott believe the crunch will ease in 2019 - although not at every price point or market. Supply in a particular market or price point may meet unmatched demand and vice versa. Upper price brackets have already seen a softening in price points and an increase in inventory. Though the majority of demand remains focused on entry-level price points where supply challenges have not been met and property prices have and will continue to significantly appreciate.
“While available inventory is constricted, it doesn’t appear overall that this will adversely affect the units sold to the same degree [in 2019],” Scott stated. National Association of Realtor (NAR) projections for new and existing home sales in 2019 are on par with 2018 numbers at approximately 5.4 million existing home sales and over 600,000 new home sales.
The conversation jumps back to the topic of steady and healthy price appreciation in 2018. Nationwide, home prices have appreciated a little over six percent in 2018. Foster fairly assesses this as a positive growth, not hyper growth as we saw in the early 2000s, leading up to the Great Recession. Appreciation has outpaced wage growth by about double this year. When you combine these factors with increasing rates, there will be affordability challenges.
Foster predicts a 1 to 3 percent appreciation of home prices as a whole, though some markets will experience more or less than this.
A viewer question about the challenges facing new home construction leads the duo into talk of tariffs squeezing builder margins and skilled labor shortages. Builders are supplying homes with high price tags. But, luxury homes are not in high demand.
In the last segue of the Facebook Live: 2019 Real Estate Market Trends, Foster and Scott strongly urge consumers and potential home buyers to take advantage of investing opportunities in the year to come. “Funds for real estate investing are very affordable and very accessible,” the pair agree. Real estate is a leveraged investment with four streams of revenue: appreciation, mortgage reduction, cash return and tax benefits.
The ending sentiment from Foster and Scott was of a healthy 2019 real estate market, much like we saw in 2018. Review the recorded video and archived discussions at Long & Foster’s Facebook page.
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