A Look Ahead in Real Estate
2019 ushers in a transitional real estate market, moving from a seller’s to a buyer’s market in 2020 or beyond, according to studies.
It’s that time of the year when we simultaneously look backward and forward to make sense of our world, with one calendar year ending and a new one beginning. In real estate, there’s plenty to report. The first half of 2018 soared...until a slowdown happened. A shift to second cities and their suburbs is ongoing, while millennials begin to come of buying age. Meanwhile, low inventory continues to create an economy of unaffordability favoring renting over buying as an investment option.
Looking forward, 2019 is forecasted as a year of transitional real estate.
What does the term, transitional real estate market, actually mean? Kinan Beck writes, "Sometimes it's a buyer's market and sometimes it's a seller's market. And there are actually other times when the real estate market is in transition.” In other words, the period between a seller’s market, which we’ve been living in for some time, and a buyer’s market, which is on the horizon, is considered a transitional real estate market. It’s something to keep your eyes on in 2019, but first, we should look at what 2018 looked like for real estate.
Looking back, 2018 was the year of the renter.
In 2018, we officially inhabited a period where it is generally more affordable to rent than buy. An imbalance of supply and demand has seen home-owning prices spike, for some beyond the point of affordability, creating a definitive shift to renting. The increasing demand was no doubt influenced by the largest group of home buyers today—millennials—who have come of investment age. Diana Olick of CNBC reports that home owning is more affordable than renting in only 35% of US counties, in part because the costs of owning a home have increased 14% since last year, whereas rent has only increased by 4% over 2017. Additionally, not only is renting more affordable, but it can prove to be a better investment toward wealth creation if the savings from renting are reinvested. This is the first time renting is outperforming owning since 2010. Historical context further highlights the significance, as that was in the thick of a recession-related housing crash. However, the context is different today.
With the economy in a much different and notably better place, the shift from demand to buy toward a choice to rent will likely force a deflation in home prices. And there’s already evidence of a transition: Home supply was flat instead of lower in July of this year, while home prices rose at a slower rate. In other words, demand to buy is plateauing— if not falling a little—as buyers hit a wall, affordability wise. In the context of a transitional real estate market, 2019 is going to be a smoother transition than it was 8-10 years ago because income, employment, and credit ratings are all up. 2019 might be a weaker market as it transitions, but experts are saying that a buyer’s market is right around that corner.
Don’t expect a buyer’s market just yet.
In a recent Zillow study, more than 100 real estate economists and experts asserted their predictions about the U.S. housing market, including when they expect the market to favor home buyers over sellers. 76% of those surveyed said they don’t anticipate the national housing market conditions to move meaningfully toward a buyers market until 2020 or beyond. That doesn’t mean all regional markets will perform that way: The housing marketing in the Midwest and Northwest are predicted to shift in favor of home buyers sooner than other regions.
Blog article courtesy of Matt Felzke, Zap Marketing and Communications Manager