2019 Economic and Housing Forecast Preview

2019 Economic and Housing Forecast 
By Matthew Gardner, Chief Economist, Windermere Real Estate 

What a year it has been for both for the U.S. economy and the national housing market. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market. As the year comes to a close, it’s time for me to dust off my crystal ball to see what we can expect in 2019.

The U.S. Economy

Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.

Firstly, any cyclical downturn will not be driven by housing. Although it is almost impossible to predict exactly what will be the “straw that breaks the camel’s back”, I believe it will likely be caused by one of the following three things: an ongoing trade war, the Federal Reserve raising interest rates too quickly, or excessive corporate debt levels. That said, we still have another year of solid growth ahead of us, so I think it’s more important to focus on 2019 for now.

The U.S. Housing Market

Existing Home Sales
This paper is being written well before the year-end numbers come out, but I expect 2018 home sales will be about 3.5% lower than the prior year. Sales started to slow last spring as we breached affordability limits and more homes came on the market. In 2019, I anticipate that home sales will rebound modestly and rise by 1.9% to a little over 5.4 million units.

Existing Home Prices
We will likely end 2018 with a median home price of about $260,000 – up 5.4% from 2017. In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m forecasting the median home price to increase by 4.4% as rising mortgage rates continue to act as a headwind to home price growth.

New Home Sales
In a somewhat similar manner to existing home sales, new home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9% to 695,000 units – the highest level seen since 2007.

That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor, and material costs, and this is an issue that is not likely to be solved in 2019. Furthermore, these constraints are forcing developers to primarily build higher-priced homes, which does little to meet the substantial demand by first-time buyers.

Mortgage Rates
In last year’s forecast I suggested that 5% interest rates would be a 2019 story, not a 2018 story. This prediction has proven accurate with the average 30-year conforming rates measured at 4.87% in November, and highly unlikely to breach the 5% barrier before the end of the year.

In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or levelling. We will likely end the year with the 30-year fixed rate at around 5.7%, which means that 6% interest rates are more apt to be a 2020 story.

I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.

Conclusions
There are still voices out there that seem to suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating.  In all the data that I review, I just don’t see this happening. Credit quality for new mortgage holders remains very high and the median down payment (as a percentage of home price) is at its highest level since 2004.

That is not to say that there aren’t several markets around the country that are overpriced, but just because a market is overvalued, does not mean that a bubble is in place. It simply means that forward price growth in these markets will be lower to allow income levels to rise sufficiently.

Finally, if there is a big story for 2019, I believe it will be the ongoing resurgence of first-time buyers. While these buyers face challenges regarding student debt and the ability to save for a down payment, they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.

Posted on January 6, 2019 at 9:08 pm
Paul Hunter | Category: About the area, Buyer Tips, Evans Real Estate, Fort Collins Real Estate, Homes for Sale, Investment, Loveland Real Estate, Real Estate, Seller Tips, Wellington Real Estate, Windsor Real Estate | Tagged , , , , , , ,

What’s Happening In The 2017 NoCo Real Estate Market?

Have you asked yourself this question, or has someone you know asked this question? Then let us answer! Check out the video below that outlines our 2017 Windermere Real Estate Market Forecast!

Posted on March 4, 2017 at 7:20 pm
Paul Hunter | Category: About the area, Buyer Tips, Investment, Real Estate, Seller Tips | Tagged , , , , , , , , ,

2017 Real Estate Market-Where Are We Going?

Posted on January 27, 2017 at 3:44 pm
Paul Hunter | Category: About the area, Buyer Tips, Investment, Real Estate, Seller Tips | Tagged , , , , , , ,

What’s Happening In The 2017 Real Estate Market?

I want to thank everyone who came out to the Windermere Forecast last week, it was great to see so many people there interested in the real estate market and where we are headed in the future. I wanted to make sure that even if you did not make it, you are familiar with some of the big takeaways from the presentation.

The big story of course is the ongoing low inventory in Northern Colorado. We are at a quarter of where we were back just 6 years ago in 2011, just check out the graph below. This will continue to drive a fast moving market through 2017, although potentially not at the same pace we saw in 2016. That cooling off will be a product of increasing interest rates as the year progresses. While it is certainly great to be a seller in this market, there are still great ways for buyers to get more home than they could have afforded in the past because of where interest rates are currently.

What that low inventory has driven is an above average appreciation rate for the Fort Collins/Loveland areas (as well as the rest of Northern Colorado). As you can see below, we are above the long term 5% appreciation average, so again that will probably slow down just a little bit in to 2017, although we will still be appreciating!

One of the other big questions I get is from my investors, and that is “why should I buy an investment property with these increased prices?”. The answer lies in two things. The first is low interest rates, and the second is with massively increased rents. Even when a 3 bedroom 2 bath home near the CSU campus was $100,000 less than it was today, we are STILL cash flowing about 60% more than we were back when prices were lower. As you can see below, we have seen an increase in rents, along with a decrease in vacancy (especially if you look at a longer 10 year term).

If you have any questions about this info, or want to talk more about buying, selling, or investing in real estate, I’d love to take you to coffee to discuss it! 

Posted on January 23, 2017 at 3:53 pm
Paul Hunter | Category: About the area, Buyer Tips, Investment, Real Estate, Seller Tips | Tagged , , , , , , , , ,

Inventory! Inventory! Inventory!

The three most important parts of real estate may be location, location, location; but I would argue right now they are inventory, inventory, inventory! In Fort Collins we were still at only 215 homes active and on the market this month. In a town of over 150,000 people that definitely is NOT enough. We have 1.27 months of inventory available, which is WELL below the 6 months that the National Association of REALTORS describes as a balanced market.

There is good news for both buyers and sellers though. On the seller side, even with a slowdown in the higher end of the market, we have seen really great results in our Windermere Certified Listing process as well as our high end Premier Program. Many sellers are deciding to capitalize on their increase equity in their homes and sell in a seller’s market (below $400,000) and buy in a buyer’s market (over $500,000).

The good news for buyers is that even with the small bump in interest rates we have seen in the last couple months, the rates are still so low that buyers can afford more than they have before! Call me if you want to talk about the ways we can definitely still find you a home in this low inventory market.

If you have any questions about buying or selling a home in Northern Colorado, please give me a call and I’d be happy to take you to coffee to show you more stats and help you with your decision.  Also, if you would like detailed information about what is going to be happening in the 2017 real estate market, come to our Windermere Market Forecast next Thursday the 19th at 5:30pm at the Fort Collins Marriott. We will have our chief economist fly out from Seattle to give us a rundown on the National, State, and Local markets. I hope you can make it!

Posted on January 15, 2017 at 4:32 pm
Paul Hunter | Category: About the area, Buyer Tips, Real Estate, Seller Tips, Things to Do | Tagged , , , , , , , ,

2016 Windermere Real Estate Forecast

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Thank you to everyone that joined us for our Forecast event last week! It was great to see so many people here and to hear about where our market is going for the next year. Our chief economist came out from Seattle to give a run down on the national and state markets, and Eric Thompson discussed our local market dynamics. Then I was lucky enough to get to present our Windermere Foundation check to our non profit partner Homeless Gear. Check out the link below to watch a quick recap of the Forecast highlights!

LINK TO VIDEO

Posted on January 28, 2016 at 4:47 pm
Paul Hunter | Category: Real Estate | Tagged , , ,