Everyone wants a crystal ball for the real estate market in the coming year. No one has one. We do have evidence that leads economists and experts to predict a slowing market, rising interest rates, and more inventory in the mid to upper price range of houses for sale. If you’ve asked me, then you’ve heard me say for years that prices have been rising too quickly, and that a slow down is needed. The thing that is tough to swallow is that there won’t be a real change in affordability or inventory for those of us buying in the Portland Metro area for under $400,000.
Here’s how it will probably shake out, based on Realtor.com’s 2019 forecast. Nationally, house prices are expected to still go up 2.2%, much slower than previous years, but still going up. Rising mortgages rates will combine with rising house prices to reduce affordability.
Realtor.com economists expects mortgage rates to hit 5.5% by the end of 2019. In real money, this means that the average home will cost 8% more per month than in 2018. Home sales could decline by 2% next year. These numbers aren’t startling by themselves. It is really tough to face this reality after coming of age and coming into the real estate market during record low mortgage rates (that lasted for years and years) and housing prices going down. When we first looked at buying a house in 2008, rates where at 6.5%, which was considered really low! 18 months later we actually closed on a house, rates where under 6%, then we refinanced a few years later in the low 4% range. It’s hard to give that up and change my expectations, even working in the industry for more than 10 years! I can’t imagine how frustrating it would be to make a plan to buy, save and save, only to have affordability keep moving up and out of range. That’s a reality today though, so watch out for old strategies to re-emerge, like assuming low interest rate loans and seller carried financing.
No forecast is complete without a look at generational buying habits! As a very old Millennial myself, I’m very excited for my generation finally being able to move into ownership, and the new ways that we are doing it! They are actually old ways, but not idealized during the Nuclear Family/American Dream/Perfect Home period of 1945-2008. Millennials are making up the key share of buyers as their income increases and as they start and grow their families. Realtor.com expects, Millennials will account for 45% of 2019 mortgages, with 37% going to Gen Xers and 17% to baby boomers. Boomers are buying a lot still, but using cash. I’m continuing to see the trend of multi-generational housing, co-housing, house sharing, building ADUs, etc, to add rental income and built-in child/pet care. This is a return to pre WWII patterns, and I think a much healthier community. Less financial strain on new homeowners is also a great benefit!
The takeaway is that house prices are still going up, we are not heading into a housing downturn. Everyone, especially younger buyers, are getting creative to make home buying possible. It’s not too late to buy a great house, and rates will not be up in the really crazy range for years. We aren’t getting even close to 17%, which was the mortgage rate in October 1981.