Redfin: 2019 Housing Market to Be ‘Coolest in Years’

Redfin, Seattle, said the housing market will continue to cool in the first half of 2019, with price appreciation slowing further and inventories improve.

“Inventory will rise back up to 2017 levels, and price growth, while likely still positive, will be the lowest we’ve seen since 2014 or possibly even 2011,” said Redfin Chief Economist Daryl Fairweather. “Investors and house-flippers will back away from the cooling market, and real estate companies that buy homes from consumers to quickly sell at a profit will face their first serious test. Tech companies and local governments will continue to go head to head on local housing issues.”

Redfin made seven predictions for 2019:

–The housing market will continue to cool. Redfin’s forecasts have price growth settling around 3 percent in the first half of the new year, down from 7 percent in the first half of 2018, but there is a real chance prices will fall below 2018 levels. “A still-growing economy and increased access to credit will support more homebuyer demand, but higher interest rates will make home-buying more expensive, so it’s hard to say whether home sales will stay down or rebound next year,” Fayreweather said.

–The homeownership rate will continue to rise. Homebuyers will enjoy more inventory and less competition from speculators and house-flippers, which will lead to more people enjoying the benefits of homeownership. Homeownership has been consistently growing from its post-recession valley of 63 percent in 2016 to above 64 percent this year. “We predict the homeownership rate will grow more rapidly in 2019,” Fayreweather said.

–It will cost more to borrow, but more people will have access to credit for home-buying. A mortgage-rate increase to 5.5 percent by the end of 2019 from the sub-5 percent level where rates have been hovering in recent months would mean about a $100 increase in monthly mortgage payments on a $300,000 home (the Mortgage Bankers Association said rates will hold at 5.1 percent). Lenders will also feel the effects of rising rates, which will increase their costs of lending and dampen demand for their services. “This will motivate lenders to expand their customer base to low-income borrowers and first-time homebuyers,” Fayreweather said. “But of course, lenders will charge more for these loans–both to cover the risk of lending to borrowers with less-than-perfect credit and to cover their own costs of borrowing.”

–A cooling housing market will dampen economic growth only slightly: in 2019, the economy will most likely grow, but a cooler housing market will contribute less to the overall economy. Fayreweather noted even if residential investment (money spent on construction, renovations and real estate commissions) were to fall by 10 percent, total economic activity would be impacted by 1 to 2 percent. “That isn’t enough to cause a recession as long as the rest of the economy keeps growing,” she said.

–Fewer homes will be built, but more builders will focus on starter homes. In 2019, homebuilders will be more cautious about building during a cooling market and focus on building starter homes that are easier to sell than luxury homes. On the supply side, higher labor costs will limit the number of homes built. Meanwhile, higher wages will be a boon to demand for starter-homes among working-class Americans.

–Institutional buying will face its first serious test. If home-buying demand falters due to higher interest rates and stock-market volatility, institutional buyers who made money from nearly every sale in a rising market with low interest rates could start to face losses, or may demonstrate more discipline than other housing investors.

–Tech and local government will go head-to-head on housing. “Cities have been struggling with the double-edged sword of tech-company-driven prosperity and inequality,” Fayreweather said. “Growing cities will have to start building more housing now if they don’t want to face the affordability and homelessness problems that established tech hubs like Seattle and San Francisco are currently facing.”