What’s on the Horizon in the 2019 Housing Market

Chief Economist Danielle Hale Shares What’s on the Horizon in the 2019 Housing Market

It’s going to be a tougher road ahead for home buyers and sellers in 2019, according to the realtor.com® 2019 National Housing Forecast. Although inventory is expected to grow, so too are home prices. And with mortgage rates expected to hit 5.5 percent by the end of 2019, monthly mortgage payments will rise 8 percent, putting home ownership more out of reach especially for younger Gen-Z, millennial, and other first-time home buyers. Upscale homes in high-growth markets, however, will provide more opportunities for buyers.

Whether you are a potential buyer looking to make a purchase in 2019, a home owner considering putting your house on the market, or a real estate professional, realtor.com® Chief Economist Danielle Hale parses through the forecast data and breaks down what the road ahead may mean for you.

What are the major takeaways looking into 2019?

What’s most surprising is the challenges both buyers and sellers are likely to experience. In 2018, it was all about buyers dealing with competition, but it’s sellers that are going to have to contend with that in 2019. On the other hand, buyers are going to have more homes to choose from with the inventory increase, but need to be prepared for rising prices and mortgage rates. A monthly mortgage payment will be about 8 percent higher next year while incomes are growing at about 3 percent on average. They’ll have to reconcile what they want, what they need, and what they can afford.

With the expected increase in prices and mortgage rates, how can a first-time home buyer be successful in 2019?

Enlisting partners will be crucial. First-time home buyers generally don’t have the benefit of equity and, as a result, tend to put down a lower down payment and take out significant loans. When prices rise, that’s a challenge. The most important factor for a first-time home buyer is to conduct research and determine his or her budget. If you are a first-time home buyer, utilize tools such as price alerts on realtor.com® so that you’ll be notified when a property in your price range and neighborhood hits the market.

Working with an agent to identify realistic needs versus wants and setting up a very targeted framework to hone your search will be most effective. As a first-time homebuyer, this is likely your first major investment and approaching it realistically will set you up for better success. Additionally, talk with a lender to get pre-approved now. Consider getting pre-approved at a hypothetical higher mortgage rate. This way, you will already know how higher rates will impact your home search and can adjust accordingly. All of these steps will position you well and show that you’re a serious buyer. To guide you through the first-time home buying process, check out our interactive resource page.

Given the inventory increase, what can sellers expect?

Sellers will need to consider the competition. It’s still a very good market for sellers, but if they’ve had their expectations set by listening to their neighbors’ stories of how quickly their homes sold in 2018 or 2017, they’ll need to adjust their expectations because it’s not going to be the same market in 2019. They likely won’t be able to put up a listing and get multiple offers at or above their asking price; they’re going to have to be mindful of other listings in their area. If you’re a seller, to navigate the process, you’ll want to hire an agent who is a local expert. Using the Find a Realtor tool on realtor.com®, your agent can stay on top of local market dynamics and offer advice on things like repairs you should make versus those you should leave for your buyers and how to stage your home. Keep in mind that the majority of buyers are starting their home search online and listing photos on websites is often the first chance you have to make a first impression. Making sure your home is looking its best will spur online views that turn into visits and finding a buyer faster.

How will 2019’s housing market impact millennials and other generations?

Given that first-time home buyers tend to be millennials, it’s going to be a challenging year for many in this generation. However, it’s traditionally been millennials that cite rising rents as a reason to get into the home market. If they buy with a fixed-rate mortgage which most home buyers use, then they’re locking in their monthly payment, keeping it the same over time. Even if it’s more expensive today, as rents continue to rise, eventually their home payment likely will be less expensive than it would be to rent. This is a good way to keep housing costs fixed and protect from some of those inflationary increases. In addition to rising rents pushing millennials to buy homes, as the largest segment of millennials turn 30 in 2020, many are getting married and creating families, and those are key drivers prompting renters to become homeowners.

Baby boomers will be a demographic to watch. Although inventories are increasing, prices are still rising in most markets, so boomers hoping to sell will likely still face a favorable housing market. Especially when considering their long tenure, boomer home sellers are likely to walk away with a good profit. Generally expressing a desire to stay put and be tied to the local community, however, many boomers are not listing homes for sale, and this has contributed to lower inventories in the past. As they age, however, we expect more boomers to be interested in downsizing, freeing up the larger homes they currently occupy.

For those millennials that have already gotten into the market, this could be a year to trade up, which could create some more affordable inventory for those first-time home buyers. Millenials are really poised to make an impact on the housing market both at the first-time home buyer side and also at the repeat or trade up buyer side.

Will we continue to see spring buying season start earlier this year as we have in the past two years or does the 2019 market look more traditional?

In the last two years, in addition to seeing spring buying season start earlier, we also saw fall buyers persist longer into the holiday season. We haven’t seen much of that this year so that could be a sign that buyers will wait to start buying in the spring season but only time will tell. This is something to keep an eye out for moving into the spring.

What impact will the new tax bill have on the housing market?

Homeowners experienced a lot of benefits under the old tax regime that many will no longer be able to take advantage of. There are a lot of moving pieces to the tax reform plan, one of which was to limit the deductibility of mortgage interest on mortgages priced between $750,000 to $1 million. Previously, you could deduct interest on mortgages up to $1 million; now you can only deduct interest on mortgages up to $750,000.

But that’s not the biggest reason that homeowner incentives are affected by the tax plan. The biggest reason homeowner incentives are affected is that the standard deduction was almost doubled. This increase means that the majority of taxpayers are going to be standard deduction tax payers, so tax incentives won’t be a factor in their decision making because they take the same standard deduction regardless of whether they own or rent.

As far as how it affects people’s decision making in the housing market, we really haven’t seen the bulk of that. Most people have enjoyed the benefit of more take home pay this year because withholding has been adjusted, but until they’ve done their 2018 taxes, they won’t know all the ins and outs of how the tax plan is going to affect them. Come spring when people are sitting down and doing their taxes, that’s when we’re going to see a bit of a reassessment and people recognize whether they will or won’t itemize under the new regime.