The year 2019 is here. If 2018 taught us anything, we know to expect change in the new year. With mounting affordability concerns, limited inventory, and continued navigation of the aftermath of the devastating wildfires, the real estate market is in for another transformative year in 2019.
According to the chief economists with the California Association of Realtors, the overall real estate market is predicted to slow down compared to last year. A combination of high home prices and eroding affordability is expected to cut into the housing demand and contribute to a weaker housing market in 2019. However, the pace of growth is still strong and pricing still indicates an above level of appreciation. With modifications in asking prices, a more balanced market is emerging. Current prices are beginning to revert to normal after years of appreciation.
Many would-be buyers feel that home prices may have peaked and will wait it out on the sidelines until there is more clarity on where the housing market is headed. This trend could hold back the demand for housing and hamper home sales. Some are of the opinion that the surge in home prices over the past several years has finally taken its toll. With the high level of uncertainty about the direction of the market, home buying decisions are being affected. This uncertainty is having a psychological effect creating a mismatch in price expectations between buyers and sellers, thus limiting price growth.
While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues. Mortgage rates will increase but the level of increase will be manageable, as most consumers will have multiple tactics to mitigate some of the increase. Higher rates will drive monthly payments higher. Markets with the highest sales prices will see that higher rates will result in fewer sales; however, this move to higher rates will spur more existing homeowners to sell and buy before rates go even higher.
It will be the Millennials and Baby Boomers who will continue to move the market.
These two major demographic groups will continue to emerge as dominant purchasing forces. The two largest American generations in history are both approaching life stages that motivate people to buy a home: marriage, having children, becoming empty nesters, and retirement.
The Millennials, the demographic generation researchers identify as those born in the early 80s to 2000, accounted for more than a third of homebuyers last year. Those in the 25 to 34-age bracket will continue to move the market with their improving personal financial conditions. In addition, the financially recovering Generation X and the Baby Boomers will affect the market, too. Gen Xers are in their prime earning years with the ability to relocate to better neighborhoods and the Baby Boomers are entering retirement. Playing a double role, these demographics will boost the market as both buyers and sellers.