Thing are quieting down as we move into the Thanksgiving holiday. This is a great time for reflection as we all have a lot to be thankful for. It is also a time to look back to see how far we have come, as well as a look at what the future may bring. Regarding the future, the economic predictions for 2019 are already starting to roll in and we will spend some time reviewing these in the coming weeks. As we look back at how far we have come, it is interesting to note that the stronger economy and weaker real estate market we are now experiencing did not arrive overnight.
Today’s economy and real estate market are a product of a long and slow recovery from a very deep recession. For example, our economic growth has exceeded 2.0% six out of nine years since the recession and has never dropped below 1.5% during that time. It looks like this year will top 3.0% for the first time in over ten years–but that is not indicative of an overheated economy. Likewise, if you look at existing home sales, they have risen steadily since the recession from a low of just over four million to a high of just over 5.5 million. They have hovered between 5.25 and 5.6 million for the past five years. The small drop in housing sales will keep them towards the high end of that range. Certainly not a sign of a major slump.
Now that the economic recovery has matured, we don’t think that we can expect significant spikes in growth and that is probably a good thing, because that would cause rates to continue to rise significantly. The spikes we have had in the past years were due to temporary stimuli such as housing tax credits for first time buyers and the more recent tax cut. But we can’t do that every year with our budget deficit so high. So, let’s be thankful for the steady recovery we have and be hopeful that it continues for a few more years.
Financial experts are growing concerned by how millennials’ lack of homeownership will impact them financially when they retire. “Homeownership is one of the touchstones of being prepared for retirement,” Tamera Sims, research scientist at the Stanford Center on Longevity, told CNBC. “Buying a home at age 50 or 60 isn’t going to do you much good in funding a 30-year retirement.” But young adults are “not able to hit the [housing] market at the same age as their parents,” Sims says. Researchers found homeownership is falling the most among people under the age of 30 compared to previous generations. The homeownership rate among early millennials (those born between 1980 and 1984) at age 30 is 35.8 percent, according to the Stanford Center on Longevity. For comparison, the rate of homeownership among baby boomers at age 30 was 48.3 percent. Young adults are delaying marriage and having children and are loaded with student debt, all factors for their slow start at homeownership compared to previous generations. In 1960, the average age for men and women to get married was in their early 20s. The median age nowadays has slid closer to 30. A study in 2013 from the Urban Institute found that if a person delays buying a home to age 40 instead of age 30, that alone could result in a $42,000 loss in home equity by the time that person reaches age 60. Source: CNBCThe inventory crisis which is hampering home sales and growing demand from potential first-time buyers is starting to see improvement. Realtor.com’s September housing report shows an 8% rise in new listings year-over-year with inventory down just 0.2% from a year earlier. The year-over-year percentage rise in new listings was the highest since 2013. “After years of record-breaking inventory declines, September’s almost flat inventory signals a big change in the real estate market,” said Danielle Hale, chief economist for realtor.com® — “Would-be buyers who had been waiting for a bigger selection of homes for sale may finally see more listings materialize.” The US median home price was up 7% year-over-year to $295,000, marking a slower pace than the 10% annual rise of a year earlier. The 465,000 newly-listed homes in September were, on average, 8% cheaper ($25,000) and 10% smaller (200 sq. ft.) than existing inventory in the market. Source: realtor.com®
The US median home price increased just 4.8% in the third quarter of 2018, the slowest pace since the second quarter of 2016. The median sales price of a single-family or condo home in Q3 2018 was $256,000, 1% higher than in the previous three months. Almost half (74) of the 150 metros analyzed by ATTOM Data Solutions saw a slower rate of appreciation than a year earlier. The data showed that there were still plenty of markets posting double-digit gains, despite the overall slow-down. The average home seller in Q3 2018 gained $61,232 since purchase; a 32.3% return on the original purchase price. Distressed sales accounted for 11.6% of all US single family home and condo sales in Q3 2018, up from an 11-year low of 11.2% in the previous quarter but still down from 12.8% in Q3 2017. Source: ATTOM Data Solutions