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Redfin’s 2019 Housing Market Predictions

By anonymous follow anonymous   2019 Feb 6, 1:36am 1,330 views   10 comments   watch   nsfw   quote   share    


We predict that the housing market will continue to cool into the first half of 2019. Inventory will rise back up to 2017 levels, and price growth, while likely still positive, will be the lowest we’ve seen since 2014 or possibly even 2011. Investors and house-flippers will back away from the cooling market, and real estate companies that buy homes from consumers to quickly sell at a profit (including our own RedfinNow) will face their first serious test. Tech companies and local governments will continue to go head to head on local housing issues.

Prediction #1: The housing market will continue to cool

Over the first half of 2019, home-price growth will stay slow. Our forecasts have price growth settling around 3 percent, which would be the slowest price growth we’ve seen in years. As recently as the first half of this year, prices were still growing 7 percent, and price growth has reliably exceeded 5% since the start of 2015. There’s quite a bit of uncertainty around our price forecast; there’s a real chance prices could fall below 2018 levels, putting up negative growth for the first time since 2011.

Sellers will have to adjust their price expectations as buyers grapple with rising mortgage rates and already-high home prices. Metros that saw the most price growth in the first half of 2018 will experience the biggest slowdowns in price growth in the first half of 2019. Seattle, San Francisco, San Jose, Portland, San Diego, Los Angeles, Denver, and Honolulu are a few of the metros where we expect demand to cool the most. “A few weeks ago I helped my home-buying customers get a bid accepted that would have gone straight to the bottom of a pile of offers earlier this year,” said San Francisco Redfin agent Anna Coles. “The offer for a house in desirable Parkside was below list price and included a financing contingency, which allows the buyers to back out of the contract without forfeiting their earnest money deposit on the off-chance their loan doesn’t get approved. The norm for the past two-plus years had been that buyers had to waive standard protections like this in order for a seller to consider their offer, but this is just one sign that buyers may face less competition heading into 2019.”

On the flip side, we expect home prices to continue to grow at a strong pace in a handful of small, affordable, inland markets like Buffalo, Rochester and Greensboro, where the market is still heating up.

We’re going into 2019 with a 5 percent greater supply of homes for sale than we had going into 2018, which is the highest growth we’ve seen since September 2015, but home sales were down 8 percent since last year in November. A still-growing economy and increased access to credit will support more home buyer demand, but higher interest rates will make home-buying more expensive, so it’s hard to say whether home sales will stay down or rebound next year.

Prediction #2: Homeownership rates will continue to rise

Whether total home sales go up or down, more homes will be sold to people who plan to live in the home as opposed to investors, which will cause the homeownership rate to rise. In 2019, homebuyers will enjoy more inventory and less competition from speculators and house-flippers, which will lead to more people enjoying the benefits of homeownership. Homeownership has been consistently growing from its post-recession valley of 63 percent in 2016 to above 64 percent this year. We predict the homeownership rate will grow more rapidly in 2019.

Prediction #3: It will cost more to borrow, but more people will have access to credit for home-buying

Homebuyers have already seen mortgage interest rates increase in 2018, and the Fed’s most recent comments indicate that it will continue to raise rates perhaps twice or more in 2019, which will push the average 30-year fixed mortgage rate up to about 5.5 percent by the end of the new year. This increase from the sub-5 percent level where rates have been hovering in recent months would mean about a $100 increase in monthly mortgage payments on a $300,000 home by the end of 2019.

Lenders will also feel the effects of rising rates, which will increase their costs of lending and dampen demand for their services. This will motivate lenders to expand their customer base to low-income borrowers and first-time homebuyers. But of course, lenders will charge more for these loans–both to cover the risk of lending to borrowers with less-than-perfect credit and to cover their own costs of borrowing.

Prediction #4: A cooling housing market will dampen economic growth only slightly

In 2018, economic growth was the strongest it has been since early 2015. However, residential investment, which includes money spent on construction, renovations, and real estate commissions, and typically makes up about 15 to 18 percent of economic activity, declined slightly in 2018. In 2019, the economy will most likely grow, but a cooler housing market will contribute less to the overall economy. Even if residential investment were to fall by 10 percent, which has only happened three times in the last 40 years, total economic activity would be impacted by 1 to 2 percent. That isn’t enough to cause a recession as long as the rest of the economy keeps growing.

There could be some spillovers from the cooldown in the housing market to consumer spending. When homeowners see homes sitting on the market longer and sellers dropping their prices, they feel less wealthy. Rising interest rates will also impact more than just home sales. It will be more expensive to finance a car loan, take on credit card debt, or refinance a mortgage to take out equity, which will also weaken consumer spending.

Prediction #5: Fewer homes will be built, but more builders will focus on starter homes

In 2019, homebuilders will be more cautious about building during a cooling market and focus on building starter homes that are easier to sell than luxury homes. We have already seen the per-unit value of single-family residential building permits flatten, and we predict per-unit values of building permits will decline in 2019. Another factor in 2019 will be low unemployment, which will finally cause wages to rise for low-income workers. This will impact both the supply of and demand for housing. On the supply side, higher labor costs will limit the number of homes built. Meanwhile, higher wages will be a boon to demand for starter-homes among working-class Americans.

“When we decided to plan our first new construction development, we found a niche in the $300,000 price range in Dallas, where there is a great deal of activity among national and local builders, but almost all of it focused on the high end,” said Pushban Rajaiyan, the lead developer on Brentwood Court by Havendale Homes, a townhome community now available for pre-sale. “It was important to us to offer homes built with high quality materials but for an affordable price and in an area where residents can enjoy nearby amenities and short commutes. Just in the past few months we’ve already begun to see other builders catch on to this unmet need in the market, with other affordable, starter-home options coming available to local buyers soon.”

Prediction #6: Institutional buying faces its first serious test

If home-buying demand falters due to higher interest rates and stock-market volatility, the trend toward instant offers from institutional homebuyers could face its first serious test, a test of pricing algorithms as much as companies’ appetite for risk. Armed with billions in capital, competitors from Opendoor to RedfinNow to Zillow to Offerpad to Knock have been vying with one another to buy homes from consumers and then sell those properties at a profit, with i-buyers’ combined share of U.S. home sales growing rapidly. The question investors are asking is whether instant offers will now be significantly lower, to compensate institutional buyers for the market’s recent uncertainty, and whether homeowners will accept the offers, just to avoid those same uncertainties themselves. Institutional buyers who made money from nearly every sale in a rising market with low interest rates could start to face losses, or may demonstrate more discipline than other housing investors. In 2019, we’ll find out. If i-buying works in a bear market as well as it has in a bull market, instant offers could become a major, permanent sector within the real estate economy. If it doesn’t, a lot of money is going to sink into the sand.

Prediction #7: Tech and local government will go head-to-head on housing

Cities have been struggling with the double-edged sword of tech-company-driven prosperity and inequality. Tech companies bring highly skilled workers to cities and pay them handsomely. This is why 238 cities vied for Amazon’s HQ2. But, shortly after the HQ2s were announced, residents of Long Island City began protesting, advocating for more housing investment to avoid displacing existing residents. Crystal City has planned ahead with 4,000 new housing units, but Amazon plans to hire 25,000 people there. Growing cities will have to start building more housing now if they don’t want to face the affordability and homelessness problems that established tech hubs like Seattle and San Francisco are currently facing.

https://www.redfin.com/blog/2018/12/redfins-2019-housing-market-predictions.html

#Housing #2019Outlook #Redfin

1   anonymous   ignore (null)   2019 Feb 6, 1:38am     ↓ dislike (0)   quote   flag        

Homes Staying on the Market for a Month Longer Than Last Year in San Jose, Portland, and Seattle

Homes for sale are taking longer to find buyers this January for the first time in three years. Typical home nationwide was on the market for 55 days, up from 54 last year.

Here’s another sign that the housing market is slowing down, literally: The median number of days homes for sale are spending on the market before going under contract is soaring in markets up and down the West Coast.

For the four-week period ending January 27, the median days on market for homes sold in the San Jose metro area was 45 days, up from just 12 days a year earlier. In Seattle it was 47 days, up from 15 a year prior, and Portland, Oregon hit 50 days, up from 28 a year ago.



While we are not seeing as dramatic a slowing trend nationwide, early 2019 marked the first January with year-over-year increase in days on market in three years. The typical home that sold during the four-week period ending January 27 took 55 days to find a buyer, up from 54 days a year earlier. Previously days on market had been declining every year since 2015, when the typical home took 71 days to find a buyer during the same period.

More to Read: https://www.redfin.com/blog/2019/02/days-on-market-soar-across-west-coast.html
2   anonymous   ignore (null)   2019 Feb 6, 1:43am     ↓ dislike (0)   quote   flag        

As the Number of Homes For Sale Increases, Fewer Homes are Affordable to Middle Class Buyers



“Homeownership is increasingly out of reach for the typical American,” said Redfin chief economist Daryl Fairweather. “Over the last few years builders have focused on luxury homes, and there hasn’t been enough construction of affordable starter homes.”

More to Read: https://www.redfin.com/blog/2019/01/homes-for-sale-increases-but-fewer-homes-affordable-to-middle-class.html

Link to Main Redfin housing blog: https://www.redfin.com/blog/real-estate
3   AD   ignore (0)   2019 Feb 6, 1:49am     ↓ dislike (0)   quote   flag        

"in 2019, which will push the average 30-year fixed mortgage rate up to about 5.5 percent by the end of the new year."

I expect the 30 year mortgage will peak around 6.5% within 2 years. That is where it was at around 1998.
4   Malcolm   ignore (1)   2019 Feb 6, 9:03am     ↓ dislike (0)   quote   flag        

If rates go to 6.5%, it could result in price drops of up to 50% in some markets and product on that variable alone. Entry level homes and luxury homes will be hit hardest.

2018 saw a turn, 2019 and 2020 will be a blood bath in the former hot areas.

As an anecdotal observation, in 2017, I sold a smaller home in San Marcos for $408 a foot. San Marcos is mainly a nicer blue collar area. I am now seeing sales in coastal areas in the mid $300 per foot range. I am seeing sales in San Marcos and Vista(less desiresble) in the low 200s per foot, and even high 100s. I will buy in a nice area near 200 or in a San Marcos area for mid 100s per foot.

Two factors are going affect the short term:

1. Economic - straight up affordability, interest rates and incomes.

2. Change in social values - many of you might be surprised that someone primarily motivated by financial numbers would speculate that this could have a bigger impact than the first point.

Whether directly or indirectly, there is a mindset on the Patrick.net site that seems to be spreading through our culture, which is that people don’t want to be prisoners to an expensive, wasteful McMansion. This attitude is more prevalent in the up-and-coming millennial and subsequent generatiion. People would rather spend their money on experiences than tangible things and from my personal perspective, I would rather settle for the right neighborhood instead of the most prestigious neighborhood because I like to travel and have the freedom and disposable income that many “rich” people don’t have.
5   AD   ignore (0)   2019 Feb 6, 12:26pm     ↓ dislike (0)   quote   flag        

A $250,000 mortgage (no money down),

3.5% interest rate's principal and interest monthly payment is $1124 (July 2016 interest rate)

4.5% interest rate's principal and interest monthly payment is $1267 (today's rate)

6.5% interest rate's principal and interest monthly payment is $1580 (projected rate by May 2021)

Hence, there is about a 25% increase in principal and interest monthly payment from today to May 2021. However, consider that wages may go up 3% annually, so the increase would not be as significant. Also, some will use savings (i.e., mutual funds, Amazon and Facebook stock, etc.) for down payments; account for the appreciation of these investment savings (and future down payments) as far as making the housing more affordable.

I don't see "median" housing going down 50% in that case. I see it possibly going down a maximum of 15%.

Also, if you have a Veterans Administration loan at lower rate, then it can be assumed by the next buyer (doesn't matter if they are a veteran). That should be a factor for those who bought a home over the last few years at a lower rate and at the peak housing values.

It looks like housing prices almost go through a 10 year cycle between boom and bust.
6   anonymous   ignore (null)   2019 Feb 7, 2:50am     ↓ dislike (0)   quote   flag        

Characteristics of Recent Home Buyers

Special Studies February 1, 2019 - By Carmel Ford. NAHB Economics and Housing Policy Group

Introduction

To analyze home buyers NAHB uses the American Housing Survey (AHS), a nationally representative survey of residential structures in the US and of the households who occupy them. This report uses the latest AHS release (2017) to provide insight on the characteristics of the roughly 8.8 million households who bought homes in the two years preceding the release of the 2017 AHS. This report also examines the characteristics of two home buyer subsets: first-time home buyers and trade-up buyers (those who previously owned a home). Analyzing these groups can provide insight into the types of households driving recent housing market activity. When appropriate, 2017 AHS findings are compared to those on recent home buyers in the 2015 AHS.

About Data Source

The AHS, which is sponsored by the Department of Housing and Urban Development and conducted by the Census Bureau, is released biennially in odd-numbered years. Each data release is comprised of data from the preceding two years. For the purpose of simplicity, the data in this report will be described by the year of AHS release.

Key Findings from the 2017 AHS

Demographic characteristics of the 8.8 million home buyers:

•Thirty-seven percent (3.3 million) of all recent home buyers were first-time buyers, slightly down from 39 percent in 2015.
•The typical home buyer was 40 years old, unchanged from the median age in 2015.
•Recent home buyers had a median household income of $86,623, up from a median of $78,739 in 2015.
•Twenty-seven percent of recent home buyers were racial or ethnic minorities, about the same as in 2015 (26 percent).

Characteristics of the 8.8 million homes purchased:

•The median price of homes purchased by recent home buyers was $228,389, up 10 percent from $208,573 in 2015.
•Recent home buyers purchased homes with a median of 1,890 sq. ft., essentially unchanged from 1,900 sq. ft. in 2015.

How and why the 8.8 million homes were purchased:

•Eleven percent of recent home buyers purchased a home without a down payment, the same share as in 2015.
•Fifty-two percent of recent home buyers used savings or cash on hand for the down payment, a slight decrease from 54 percent in 2015.
•The top reasons why recent home buyers decided to move were to 'move for a better home’ (55 percent), to ‘move for a better neighborhood’ (46 percent), and to ‘move to form a household’ (39 percent).

Home Buyers

As mentioned above, approximately 8.8 million households purchased homes in the two-year period prior to the 2017 AHS. Historically, the level of home buyers reached a cyclical high in 2005 (11.6 million), but after the recession hit, it dropped to a low of 6.8 million in 2011. The level climbed to 7.3 million in 2013 and 7.9 million in 2015, before jumping by almost 1 million to 8.8 million in 2017



More to read, 10 more graphs and data:

http://www.nahbclassic.org/generic.aspx?sectionID=734&genericContentID=266248&channelID=311
8   anonymous   ignore (null)   2019 Mar 8, 6:23am     ↓ dislike (0)   quote   flag        

Did Super Bowl Weekend Predict How the 2019 Housing Market Will Do? - The CEO of real estate website Redfin believes it can.

About 40 years ago, a sportswriter came up with an "indicator" of the year's stock market performance based on which team won the Super Bowl at the start of that year. There's not much purpose in going into details -- like all of these kinds of market predictors, time has proven it to be bunk.

But Glenn Kelman, CEO of the real estate website Redfin (NASDAQ: RDFN), says that if you know what to look for on Super Bowl weekend (hint: it's not Tom Brady's passing statistics), you can get a pretty good idea of how the real estate market is going to go the rest of the year.

Kelman tracks home sales during the weekend of the big game. He recently told NPR's The Indicator podcast that sales that weekend serve as a reliable indicator for how real estate will perform for the whole year.

"That weekend is the weekend where the housing market either goes crazy or it takes a nap," Kelman told host Stacey Vanek Smith. "It's sort of a Groundhog Day for the housing market. What I'll be watching that weekend is just how many people are touring houses, and on Sunday night, how many of them decide to make an offer."

How will 2019 be?

Most people understand that Punxsutawney Phil (the gold standard for groundhogs) does not actually determine when winter ends. Kelman, however, fully believes that what happens in the housing market on Super Bowl weekend tells the tale for the rest of the year. He told Smith how this year's data played out while explaining the trends leading into Super Bowl weekend:

So in the first three or four weeks of January, it was very hard to tell. And then the week before the Super Bowl, oh, it was looking kind of good. And then the week of the Super Bowl, oh, yeah, it's looking real good. I wouldn't say that we're out of the woods yet, but demand is significantly stronger. And what's really interesting and weird about this is just what a knife's edge the economy is walking on right now. Rates have come down a little bit. They were at 5 [percent] and now they're at 4 1/2.

Mortgage rates coming down brought buyers back into the market, according to Kelman. He was careful to explain that the market isn't great, calling it "less worse" than things were in the second half of 2018.

"In the second half of the year, things were pretty bad. If you put a house on the market, it was really hard to find a buyer," he said. Now, Kelman admits that the housing market isn't as strong as it was in January 2018, but he's encouraged by its direction.

"It's still not as easy as it was in January 2018," he said. "They were selling like hotcakes. There were bidding wars in almost every American city except for Oklahoma City. And now, that isn't the case, but there's a lot more demand than there was in the second half of 2018."

It's still tenuous

While Kelman is optimistic, he admitted that his Super Bowl weekend forecast isn't a sure thing. He noted that market conditions are strong now where inventory has increased, which limits bidding wars, but it has not grown by enough to make it truly a buyer's market.

"I think there's a feeling in the economy right now that the good times are here, but we're not sure how long they're going to last," he said. "And it's made everybody just extraordinarily sensitive to economic events."

"At the first sign of bad news, some buyers head for the hills," Kelman explained. "This is one reason why the stock market has been so volatile over the last two quarters. ...

In coastal markets where homes are approaching a median price of a million dollars, people are using their portfolios to pay the down payment. In 2019, those portfolios are doing better, and the economy has kept chugging along, with low unemployment, some wage growth, mostly good earnings. When The Fed backed off on rates, it really gave the housing market some room to recover in 2019."

Redfin has not released any hard data for Super Bowl weekend. In January, however, the average sale price rose by 2.9% year over year and the backlog of homes for sale jumped from less than one month in January 2018 to 4.2 months this past January.

https://www.fool.com/investing/2019/03/07/super-bowl-weekend-predict-2019-housing-market.aspx
9   porkchopexpress   ignore (0)   2019 Mar 8, 8:12pm     ↓ dislike (0)   quote   flag        

AD says
A $250,000 mortgage (no money down),

3.5% interest rate's principal and interest monthly payment is $1124 (July 2016 interest rate)

4.5% interest rate's principal and interest monthly payment is $1267 (today's rate)

6.5% interest rate's principal and interest monthly payment is $1580 (projected rate by May 2021)

Hence, there is about a 25% increase in principal and interest monthly payment from today to May 2021. However, consider that wages may go up 3% annually, so the increase would not be as significant. Also, some will use savings (i.e., mutual funds, Amazon and Facebook stock, etc.) for down payments; account for the appreciation of these investment savings (and future down payments) as far as making the housing more affordable.

I don't see "median" housing going down 50% in that case. I see it possibly going down a maximum of 15%.
It's not a math issue, but a herd mentality problem. As soon as prices start dropping after so much buying over the years, the herd will try to get out of real estate and buyers won't want to catch a falling knife. The real estate market (at least in CA) is neither rational nor mathematical.
10   AD   ignore (0)   2019 Mar 8, 8:54pm     ↓ dislike (0)   quote   flag        

porkchopexpress says
It's not a math issue, but a herd mentality problem.


I agree group psychology is at work, as it does cause major swings in the market, from it being overbought to oversold.

But also there is the economics as far as the appearance of a home being a good value or buy. That is why I noticed home prices fluctuate between 3 to 4.5 of the average household income. There are metrics or economic factors which do affect the market. In the oversold region, eventually there is enough of a good deal (i.e., "blood on the streets") for value buyers to buy en masse and then to attract more buyers.

https://cdn-images-1.medium.com/max/1600/1*T7zcCcC3snBBqbQoJswQAQ.jpeg

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