Daryl Fairweath, chief economist with Redfin, predicts the first half of 2019 will be coolest housing market we’ve seen for years.
- Price growth will continue to be slow BUT its positive motion will be the lowest since 2014, or, even 2001.
- Flippers and investors will continue backing away from the market.
- Inventory will rise up to 2017 levels.
Let’s get into the specifics of Redfin’s predictions in no particular order:
Most fundamentally, Fairweath does not see the housing market as being a contributing factor to any potential, future recession. Even if residential investment (money spent on construction, renovation, real estate commissions) dropped below its usual 15%-18% contributions to overall economic activity by 10%-12%, only 1% – 2% of the economy would feel that impact. First affected, however, would be consumer spending.
More cautionary consumer spending, of course, leads into more discerning consumer spending. Instead of price growth being +7% as it was in the first half of 2018, Fairweath sees price growth slowing to approximately +3% in 2019, the slowest growth rate since 2015. (Other housing experts agree with this approximate 3% growth rate in 2019.)
Fairweath continued, “There is a real chance prices could fall below 2018 levels, putting up a negative growth rate for the first time since 2011.” And, like other industry experts, Fairweath believes that metros that experienced the most price growth in the first half of 2018 will have the biggest slowdown in the first half of 2019.
(All the while, remember that inventory grew 5% in 2018, the highest inventory since 2005, and that sales were down -8% in November 2018.)
Fairweath believes homeownership rates will continue to climb into and throughout 2019 despite increased borrowing costs due to rising interest rates. Flippers, investors and lenders all felt the effects of higher interest rates as much as home borrowers have. The results? Fewer flippers and fewer investors stepping up to the plate while lenders are/will step up to the plate by making home borrowing more accessible to more low-income and first-time borrowers. (Of course, those lenders will charge those previously under-served borrowers more than their more typical borrowers.)
Sellers and homebuilders have and are also feeling the effects if higher interest rates. Fairweath believes sellers will continue, as they began in 2018, to drop their listing prices in order to be competitive. And Fairweath sees builders shifting their focus to starter homes where demand outstrips supply.
Redfin sees 2019 as being the “first serious test” for institutional or iBuying platforms. Fairweath said, “If ibuying works in a bear market as well as it has in a bull market (where home buying demand is high), instant offers could become a major, permanent sector within the real estate economy. If not, then a lot of investment money may be lost.”
Lastly, Redfin believes that the tech sector of the economy and local governments must go forward to solve tech-driven prosperity (high home prices) and inequality/lack of affordability. For example, Amazon’s HQ2 in Crystal City planned for 4,000 new housing units BUT Amazon planned to hire 25,000 new people to staff that new facility.
Where will all those people live? And where will all existing residents of Crystal City live if/when they are priced out of their homes? Redfin predicts 2019 may be the year to begin figuring out answers to these very large questions.