The year has so far been a promising one for would-be home buyers. The seemingly unending rise in home prices started to slow and mortgage rates dipped to unexpected lows. Both were good news for Millennials who—despite the never-settle-down stereotype—are yearning to become homeowners.
(AP Photo/Marcio Jose Sanchez, File)
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Still, despite suggestions that a buyer’s market might be on the horizon, that dream has yet to be realized. “First-time buyers can expect less competition than last year, but it’s still very much a seller’s market in most places,” says Ralph McLaughlin, deputy chief economist for property data firm CoreLogic.
Will that seller’s market continue? Probably. But it’s not all bad news for those looking to jump on the home buying bandwagon. As McLaughin points out, the year “seems to be shaping up as a good time for potential first-time buyers to enter the market, with no current signs of imbalance that would either force them to hurry or cause them to pull back.” In other words, it’s a good time to go about that home search in a thoughtful and deliberate manner.
Here’s what McLaughlin and other industry experts predict for the second half of 2019 and beyond:
Millennials will drive the market.
Consider it the year of the first-time home buyer. More than half of all mortgages originated by Fannie Mae and Freddie Mac went to first-time buyers last year, and with Millennials hitting their prime home buying years, those numbers are only going to grow.
Data from the National Association of Realtors (NAR) shows that Millennials made up 37% of all home buyers last year and 20% of all sellers, and since 2017, they’ve accounted for the largest share of mortgage originations in the country. Last year, they took on 45% of all new mortgages, and in November, even outpaced Generation X on total loan volume by dollars originated. Gen Xers had long held that crown, accounting for more than half of all loan originations by dollar volume in 2013. The older cohort’s mortgage activity has been steadily declining ever since.
“This trend shows no signs of reversing in 2019,” observes Odeta Kushi, deputy chief economist for title insurance and settlement company First American. In short? Millennials will continue to rule the market.
Inventory will improve—but not by much.
Recent data from Trulia shows that inventory is rising for starter homes and trade-up properties—but likely not enough to satisfy demand. According to the real estate marketplace’s recent analysis, starter home inventory was up 3.5% last quarter, while trade-up options rose 4.8%. The catch? The upticks also came with 12.4% and 8.3% hikes in price, respectively.
As LendingTree’s chief economist Tendayi Kapfidze explains, “There has been an increase in supply compared to last year, but levels are still quite low. Supply is particularly lacking at lower price points.”
According to Kushi, total housing stock is well below the nation’s pre-recession average, and though an upward trend in starter home inventory may help, its mostly higher-priced markets that will benefit—particularly those along the West Coast, like San Jose, Los Angeles and Seattle.
Home prices are headed up.
Prices have been on the rise since 2012, outstripping their pre-recession peaks early last year. While the trend hasn’t yet reversed, it did lose steam in recent months. Last March, for example, prices jumped 7% over 2017. This year, they were up just 3.7% annually. The slowdown in price appreciation is helping improve affordability for many would-be buyers, especially as wage growth finally accelerates.
Still, experts warn that house prices aren’t done rising yet. “Across the nation, home buyers are benefitting from lower-than-anticipated mortgage rates, rising wages and a relative slowdown in house price appreciation,” Kushi said. “Despite the affordability boost, rising demand against limited inventory of homes for sale means acceleration in house price appreciation may be on the horizon.”
The most recent Home Price Index Forecast from CoreLogic supports this theory, predicting a 5.6% uptick in home prices by May 2020.
Mortgage rates will stay low.
Mortgage rates hit their lowest point since late 2016 last month, averaging 3.80%, according to Freddie Mac. The decline caused a surge of refinancing in late June, when refis accounted for more than half of all mortgage activity in a single week.
Experts expect this trend to stick around. In fact, rates could go even lower.
As Doug Duncan, chief economist at Fannie Mae explains, “The Fed has moved to a bias toward easing, as global economic activity has slowed. Interest rates have fallen as a result and could move lower if the Fed acts to lower rates as insurance for economic growth.”
Fannie Mae, Freddie Mac and the Mortgage Bankers Association all predict the 30-year, fixed-rate mortgage rate will finish out the year between 3.9% and 4.1%—lower than 2018’s full-year average of 4.54%.
Buyers can take their time.
Despite an influx of younger buyers, competition isn’t going to be as stiff as in years past. Data from real estate brokerage Redfin shows that just 15% of offers in April sparked a bidding war—down dramatically from 60% at the same point last year. Even hot markets like San Francisco have seen big declines, with bidding wars dropping from 75% of offers to just 22% in May.
According to Duncan, buyers simply aren’t in a rush—and they don’t need to be. “We expect the overall inventory of available homes to remain stable this year, but buyers shouldn’t feel as though they need to get a deal done quickly to avoid missing out on an opportunity.”
Fannie Mae’s recent Home Purchase Sentiment Index proves as much, the number of consumers who think now is good time to buy a home is up 13 points over last month. As Duncan explains, “Potential buyers are in no hurry, because house price appreciation has moderated and the Fed is giving them no reason to think that mortgage rates should be expected to increase significantly.”
Some places will be better bets than others.
Overall, the signs aren’t overwhelmingly pro-buyer or pro-seller. Industry experts don’t foresee an extreme dip or a major spike in prices or rates. And at the end of the day, housing conditions vary by market. While the conditions might look good nationally, some areas offer more opportunities than others—especially for first-time buyers.
“As the surge of Millennial demand begins to hit shore in 2019,” Kushi says, “Millennial first-time home buyers may want to consider cities that offer a greater supply of affordable homes.”
According to the recent First-time Home Buyer Outlook Report from First American, these spots include places like Memphis or Oklahoma, where the average first-time buyer can afford 71% of homes for sale, or Pittsburgh, where 69% of homes are within reach.