4th Quarter Comparison: 2017 vs 2018
Is This the Beginning of a Buyers Market?
When comparing the graph above you’ll notice a decline in both number of transactions and sales volume (Q4: 2017 vs 2018). The sale declines to buyers’ is likely due to a combination of rising mortgage rates and years of steady price hikes. Buyers who can afford to pay more fear investing money at what might be the top of the market. As a result, homes are sitting longer and more sellers are scaling back ambitions.
However, given the economy and the US outlook, even high rising interest rates may not slow things down to a considerable degree. Sales are down of late to their lowest in many years which may suggest a short period in favor of buyers. Another scenario is that it’s due to the cancellation of free trade and the transition back to US manufacturing and business. Economists believe that if theUS GDP production ramps up again in 2019, that will pull prices back up.
Bottom line: The shortage of housing and new construction units means prices still prevail in California for 2019. We may see home prices continue the trend of moving toward a plateau. However, the bottom is not likely to fall out anytime soon. So far, the cooling is just that: a pullback from a red-hot housing market, not a full drop-off.
Other things to consider: American confidence is very strong and home equity is reaching its highest levels. Fewer underwater mortgages exist so a potential collapse is even less likely.
What I’m Hearing From Clients and Potential Buyers/Sellers:
- BUYER: “Interest rates are too high right now.”
- Something to consider: Some reports say that interest rates will go up a point before the end of 2019. Interest rates are still favorable NOW. If you take out a $500k loan when rates are 1 point higher you will pay approximately $300 more per month.
- SELLER: “I think I’ll wait to put my home on the market when things pick up again.”
- Something to consider: Buyers are still entering the market now and interest rates are still favorable. There may be an imminent plateau in home prices in the near future but strategically pricing your home now will get it under contract at a price that will likely leave you with no regrets.
- BUYER: “The recession is coming. I’m going to wait until the market bottoms out and then I’ll buy.”
- Something to consider: This is usually a solid gameplan for investors who have been stockpiling cash. However, if you’re financing a portion of your future purchase you may want consider buying now before there’s another hike in rates and a tightening of loan requirements. There’s still some great opportunities out there.
- SELLER: “Home prices seem to still be going up. I’m going to wait just a bit more before I put my home on the market.”
- Something to consider: Home values are at an all time high right now. Though we hit a patch of “seasonal slowdown” in Q4 we should see things ramp up again for Q1 2019. That said, waiting is gambling…but prevailing forecasts note that we should see gradual appreciation in 2019.