2018 in review
After a six and a half year run of a housing market that pushed the pedal-to-the-metal, we began experiencing some brake-pumping in 2018. Nearly across the board, the market has cooled down considerably as compared to 2016-2017.
For the first time since 2012, we shifted from a strong seller’s market to a balanced market and now to a slight buyer’s market. Typically, a seller’s market means it takes less than 60 days for a home listed today to be placed into escrow. A balanced market takes between 90-120 days, and a “slight” buyer’s market is over 120 days, with 150 days being a “strong” buyer’s market.
So what is causing this shift? Quite simply it is a matter of supply vs. demand. In the past, as quickly as homes were placed on the market, they would receive multiple offers and be off the market. Sellers could stretch their asking price and buyers would clamor to have their offers accepted. However, in 2018 we began to see some significant changes emerge.
- Supply: The inventory of homes increased higher than in previous years, while the demand started to decrease. For example, at the end of 2018, there were 2,353 more homes on the Orange County market compared to the end of 2017, 64% more. So, instead of a supply problem, we were faced with a demand problem.
- Demand: Although overall wages were increasing, interest rates and home values were also increasing, and those factors outpaced the rise in income. So, buyers were, and continue to be, faced with an affordability issue and have been “payment priced” out of the market.
Overall, we ended 2018 with a strong U.S. economy. Unemployment was at record lows, GDP & job growth were up, and wages have been increasing. However, we also saw increases to the short-term and long-term interest rates, uncertainty on Wall Street, unresolved issues regarding the trade war, and on-going political tension.
Given that we will start 2019 with an elevated supply of homes, this means we will have a very slow start to the housing market. It is anticipated that homes will take longer to sell and one out of every four homes (25%) will not find success. Appreciation will be negligible. Interest rates will continue to rise with expected rates stretching to 5.125% by year end, thus affordability will continue to be an issue and impact demand. So although the economy may be strong, given some of these other factors, Analysts are not anticipating that the local housing market is going to improve much in the coming year.
Sellers: The first half of 2019 is likely the best for selling your home. If your home is priced correctly and presented in the best light, I can get it sold for you.
Buyers: There are more homes on the market to choose from and less competition, and although interest rates will likely increase further…. they are still at historic lows!! If you’ve been thinking about buying, now is a great time to do so before rates increase further. I can get you into the home you want.
**Information was obtained from various sources including the California Association of Realtors, 2019 Housing Forecast and The Orange Country Housing Report, Steven Thomas. This information is summarized, so some local markets results may vary.