While no one can predict the future with certainty, most experts expect to see modest growth in the U.S. housing market for the remainder of this year and next. Inventory while still tight, has started to creep upward. Mortgage rates will continue to climb, and affordability will remain a major issue in many parts of the country.
So what does that mean for San Diego County home buyers and sellers? If you ask me right now how the market is, I’d say just like our fall weather—cooling. Let’s take a closer look at some of the top indicators.
Continued Growth in Housing Market
There’s good news for homebuyers! In many markets across the country, prices have begun to stabilize after a period of rapid appreciation. In San Diego County, although the year-over median price increased 6.4 percent in September, the much-watched CoreLogic Case-Shiller Indices showed a price drop in the same month.
How can we have a price increase and decrease at the same time? It depends on what you are looking at. Rather than comparing how the median home price has changed compared to the previous year, the CoreLogic Report compares sale prices of homes using the repeat-sales method. This means they are comparing prices of homes that have sold more than once. This gives a good view of real estate market trends. The current trend is that sales are down and price gains are slowing, especially in higher priced markets like ours.
However, buyers who have been waiting on the sidelines in anticipation of a big price drop may be disappointed. Even though Case-Shiller is showing a slowdown here and in many other markets, their managing director, David Blitzer, doesn’t expect to see a major drop in home prices. Neither does Freddie Mac. With unemployment at a 49-year low, they estimate a slower, but continued growth in home prices and the economy from now through 2020.
Inventory to Remain Tight, New Construction May Help
Experts predict that demand for housing will continue to outpace available supply, especially in entry-level price ranges.
“Today, even as mortgage rates begin to increase and home sales decline in some markets, the most significant challenges facing the housing market stem from insufficient inventory accompanying unsustainable home-price increase,” said National Association of Realtors (NAR) Chief Economist Lawrence Yun in a recent release.
“The answer is to encourage builders to increase supply, and there is a good probability for solid home sales growth once the supply issue is addressed,” said Yun. “Additional inventory will also help contain rapid home price growth and open up the market to prospective homebuyers who are consequently—and increasingly—being priced out. In the end, slower price growth is healthier price growth.”
With so much demand, why aren’t more builders bringing inventory to the market? According to the National Association of Home Builders, a crackdown on immigration and tariffs on imported lumber has made home construction more difficult and expensive. Those factors—combined with the rising cost of land and increased zoning requirements—have put a damper on the industry overall. Here, in San Diego County, we have seen an increase in home building this year. But even with this increase, we are still experiencing a housing shortage.
While the current lack of inventory is generally preferred by sellers because it means less competition, a combination of high prices and rising interest rates has narrowed the pool of potential buyers who can afford to enter the market. Sellers should seek out real estate agents who utilize technologically-advanced marketing tactics to reach qualified buyers in their area.
Affordability Reaches Lowest Level in a Decade
According to a recent report by Morgan Stanley, Americans are paying the most in monthly mortgage payments relative to their incomes since 2008. And prices aren’t expected to come down any time soon.
“We believe that the current supply and demand environment will continue to push home prices higher, just at a decelerating pace,” This quote is from John Egan, Morgan Stanley’s Co-Head of U.S. Housing Strategy.
Fortunately, economists aren’t concerned about affordability levels triggering another housing crisis. Lending standards are much higher today than they were during the run-up before the recession. According to credit reporting agency TransUnion, the share of homeowners who made mortgage payments more than 60-days past due fell in the second quarter to 1.7 percent. That’s the lowest level since the market crash.
NAR Chief Economist Lawrence Yun agreed with this assessment in a recent statement. “Over the past 10 years, prudent policy reforms and consumer protections have strengthened lending standards and eliminated loose credit, as evidenced by the higher than normal credit scores of those who are able to obtain a mortgage and near record-low defaults and foreclosures, which contributed to the last recession.”
Mortgage Rates Expected to Rise
The Federal Reserve has taken measures to help keep the housing market—and the overall economy—from overheating. It has raised interest rates twice this year so far. This caused mortgage rates to surge in the first half of the year.
Economists predict that the rise in mortgage rates will continue at a more gradual rate through this year and next. The U.S. weekly average mortgage rate rose from 3.99 percent in the first week of January to as high as 4.66 percent in May. Right now they are still below 5 percent, but will probably be above 5 percent in 2019.
The good news is, mortgage rates still remain near historic lows. They’re a whopping 14 points below the recorded high of 18.63 percent in the early 1980s. Buyers who have been on the fence may want to act soon to lock in an affordable interest rate, before rates climb higher.
“Some consumers may be thinking that because mortgage rates are higher than they were a year ago, maybe I should just wait until rates fall down again,” said NAR’s Chief Economist Lawrence Yun in a recent speech. “Well, they will be waiting forever.”
What Does It Mean for Me?
If you’ve been waiting to buy a home, you may want to act now. Although there is still a shortage of available homes on the market, inventory in San Diego County has been rising since spring. This will give you more options and ease the stress. Rent in San Diego is almost twice as high as the national rate. And they aren’t expected to improve. Zillow predicts San Diego rents to continue to increase, as well.
If you buy now, you will benefit from appreciating property values while locking in an historically-low interest rate on your mortgage. Waiting to buy could mean paying more for your home as prices increase and paying higher interest on your mortgage as rates continue to rise.
And if you’re in the market to sell your home, there’s no need to wait any longer. Prices have begun to stabilize, and rising interest rates could decrease the number of available buyers for your home. Act now to take advantage of this market.
Let’s Get Moving
While national real estate numbers and predictions can provide a big picture outlook, real estate is local. Even within San Diego County, there are micro-markets depending on the neighborhood and price range of the homes. As a local market expert, I can guide you through the ins and outs of our market and the issues most likely to impact sales and home values in your particular neighborhood.
If you have specific questions or would like more information about where real estate is headed in our area, let me know! I’m here to help you navigate this changing real estate landscape.