“How’s the Market?”
What’s Ahead for Real Estate
Brought to you by Mike Ramsey, your Prosper Realtor who specializes in DFW / Dallas area homes for sale.
Rarely a week goes by where someone doesn't ask me how the market is going. While no one can predict the future with certainty, most experts are expecting to see modest growth in the U.S. housing market for the remainder of this year and next. Inventory will remain tight with the number of buyers tapering off at a comparable level. Mortgage rates will continue to creep up, and affordability will remain a major issue in many parts of the country.
So what does that mean for home buyers and sellers? To answer that question, we take a closer look at some of the top indicators.
CONTINUED GROWTH IN HOUSING MARKET
There’s good news for homebuyers, especially in the DFW area! In many markets across the country, prices have begun to stabilize after a period of rapid appreciation. This is especially true in our corner of the country where jobs are more abundant. Nationwide, home sales experienced a slight decline of 1.6 percent in the second quarter, primarily due to higher mortgage rates and housing prices combined with limited inventory. The local Texas real estate market is experiencing similar trends. Data coming out of the Real Estate Centar at Texas A&M show that Texas housing sales fell 2.5 percent in the third quarter despite a record-breaking July.10
However, buyers who have been waiting on the sidelines in anticipation of a big price drop may be disappointed. Demand remains strong across the sector and prices continue to rise. The Case-Shiller U.S. National Home Price Index reported a 6.2 percent annual gain in June, a healthy but sustainable rate of appreciation.1
In its latest Outlook Report, Freddie Mac forecasts continued growth in the housing market due to a strong economy and low unemployment rate, which dropped to 3.9 percent in July.2
“The national housing market hit some speed bumps this summer, with many prospective homebuyers slowed by not enough moderately-priced homes for sale and higher home prices and mortgage rates,” according to Sam Khater, Chief Economist at Freddie Mac. “The good news is, the economy and labor market are very healthy right now, and mortgage rates, after surging earlier this year, have stabilized in recent months. These factors should continue to create solid buyer demand, and ultimately an uptick in sales, in most parts of the country in the months ahead.”3
Solid buyer demand is evident in the metropolitan areas of Texas where job markets are booming and unemployment rates tend to be well below the national average. Homes continued to fly off the market in the third quarter of 2018 at an average of under 60 days, and mortgage applications for purchases held steady, corroborating the strength of demand.10
INVENTORY TO REMAIN TIGHT, NEW CONSTRUCTION MAY HELP
Experts predict that demand for housing will continue to outpace available supply, especially in the entry-level price range.
“Today, even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory accompanying unsustainable home-price increase,” said National Association of Realtors (NAR) Chief Economist Lawrence Yun in a recent release.
"The answer is to encourage builders to increase supply, and there is a good probability for solid home sales growth once the supply issue is addressed,” said Yun. Additional inventory will also help contain rapid home price growth and open up the market to prospective homebuyers who are consequently—and increasingly—being priced out. In the end, slower price growth is healthier price growth."4
With so much demand, why aren’t more builders bringing inventory to the market? In our area, we are still seeing a lot of new residential construction, but my builder sources are indicating that they are becoming more cautious before starting new neighborhoods or new phases. Other parts of the country are seeing a more significant slowdown. According to the National Association of Home Builders, a crackdown on immigration and tariffs on imported lumber have made home construction more difficult and expensive. Those factors—combined with the rising cost of land and increased zoning requirements—have put a damper on the industry overall.5
Still, there’s evidence that a modest rise in the rate of new building projects may be on the way. Freddie Mac predicts new housing construction will increase slightly after a stall last quarter.2 And a recent report by Freedonia Focus Reports forecasts an annual increase in housing starts of 2.4 percent through 2022, led by an uptick in single-family homes.6 The boost in inventory should help drive sales growth and relieve some of the pent-up demand in tight markets.
While the current lack of inventory is generally preferred by sellers because it means less competition, a combination of high prices and rising interest rates has narrowed the pool of potential buyers who can afford to enter the market. Sellers should seek out real estate agents who utilize technologically-advanced marketing tactics to reach qualified buyers in their area.
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AFFORDABILITY REACHES LOWEST LEVEL IN A DECADE
According to a recent report by Morgan Stanley, Americans are paying the most in monthly mortgage payments relative to their incomes since 2008.7 And prices aren’t expected to come down any time soon.
"We believe that the current supply and demand environment will continue to push home prices higher, just at a decelerating pace," said John Egan, Morgan Stanley’s Co-Head of U.S. Housing Strategy.
Fortunately, economists aren’t concerned about affordability levels triggering another housing crisis, as lending standards are much higher today than they were during the run-up before the recession. According to credit reporting agency TransUnion, the share of homeowners who made mortgage payments more than 60-days past due fell in the second quarter to 1.7 percent, the lowest level since the market crash.7
NAR Chief Economist Lawrence Yun agreed with this assessment in a recent statement. “Over the past 10 years, prudent policy reforms and consumer protections have strengthened lending standards and eliminated loose credit, as evidenced by the higher than normal credit scores of those who are able to obtain a mortgage and near record-low defaults and foreclosures, which contributed to the last recession.”4
MORTGAGE RATES EXPECTED TO CONTINUE RISING
The Federal Reserve has taken measures to help keep the housing market—and the overall economy—from overheating. It has raised interest rates twice this year so far, causing mortgage rates to surge in the first half of the year.
Economists predict that the rise in mortgage rates will continue at a more gradual rate through this year and next. The U.S. weekly average mortgage rate rose from 3.99 percent in the first week of January to as high as 4.66 percent in May. Freddy Mac forecasts an average rate of 4.6 percent for 2018 and 5.1 percent in 2019.2
The good news is, mortgage rates still remain near historic lows and a whopping 14 points below the recorded high of 18.63 percent in the early 1980s.8 Buyers who have been on the fence may want to act soon to lock in an affordable interest rate ... before rates climb higher.
"Some consumers may be thinking that because mortgage rates are higher than they were a year ago, maybe I should just wait until rates fall down again," said NAR’s Chief Economist Lawrence Yun in a recent speech. "Well, they will be waiting forever."9
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WHAT DOES IT ALL MEAN FOR ME?
In my opinion, the minor slowdown we are currently experiencing in the housing market is healthy for the economy. This especially rings true now that unemployment levels are lower and wages are rising.
If you’ve been waiting to buy a home, you may want to act now. A shortage of available homes on the market means prices are likely to keep going up. And a lack of affordable rental inventory means rents are expected to rise, as well.
If you buy now, you will benefit from appreciating property values while locking in an historically-low interest rate on your mortgage. Waiting to buy could mean paying more for your home as prices increase and paying higher interest on your mortgage as rates continue to rise.
And if you’re in the market to sell your home, or if you cannot picture yourself in your home 5 or 10 years down the road, there’s no need to wait any longer. Prices have begun to stabilize, and rising interest rates could decrease the number of available buyers for your home. Act now to take advantage of this strong seller’s market.
LET’S GET MOVING
The main takeaway from this post is that timing is everything. The key to perfect timing is to be more prepared and better equipped than the other home buyers and sellers around you. That's where our team of local DFW / Dallas area real estate market experts can help you. The sheer amount of competition that you will face as a home seller or a home buyer can be intimidating. To prove my point, try googling the phrases, DFW / Dallas area homes for sale, or Frisco homes for sale, or McKinney homes for sale, or Prosper homes for sale. The list goes on! It doesn't take long to see that you are competing with hundreds of other buyers and sellers.
If you have specific questions or would like more information about where we see real estate headed in our area, let us know! We’re here to help you navigate this changing real estate landscape. Mike Ramsey, your Frisco Realtor who specializes in DFW / Dallas area homes for sale.
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Mike Ramsey, your McKinney Realtor who specializes in DFW / Dallas area homes for sale.
1. S&P Dow Jones Indices Press Release -
2. Freddie Mac Outlook Report -
7. Business Insider -
8. Value Penguin -
10. Texas A&M University Real Estate Center -