I’m going to start with the news, and the news right now is the forecast for 2019. I’m going to talk about where things are going to be heading in the first quarter, the first half of 2019. My analysis will be revised as conditions may change rapidly over the next couple of months. I’ll keep you abreast of everything that’s taking place.
What I want you to feel comfortable with right now, is that home prices are not on the verge of depreciation. There are some people out there saying that this is 2008 all over again, and it’s simply not. Don’t take my word for it, listen to the pros.
Looking at 105 projections: 99 economists, market analysts and real estate experts that are surveyed by Pulsenomics in their home price expectation survey, plus Zelman Associates, Ivy Zelman, what she’s projecting going forward, the Chief Economist at the Mortgage Bankers Association, Freddie Mac, Fannie Mae, and the National Association of Realtors are projecting going forward.
Of the 105 projections, 104 say prices are going to continue to appreciate going into 2019 and through 2019. Robert Shiller, co-founder of the Case Shiller index and the one who called the 2008 Bubble, even predicts stability. Stability isn’t just for 2019. Here’s a table showing you Projective Price Appreciation. Some project for five years in advance, some for four years. The rest for three years going forward. The important thing that is on this table is that every single one of the numbers are green. All the projections, even those going to 2022, show that appreciation will continue each year. There are no red numbers. Every one of those numbers has a plus sign in front of it. All prices will continue to depreciate going forward.
Now, they don’t break it down to anything other than the national trend. But CoreLogic does break it down by state. I want you to see that according to their projections, there’s no state in the country that’s going to show depreciation. Not one state. So we know that appreciation, even with the table right before it, is going to slow. We’re no longer going to have that seven, eight, ten, 12% appreciation that some regions experienced over the last couple of years. Instead we’re going to go back to more normal numbers.
But there is no one calling, virtually no one calling, for depreciation at this time. But prices are going to slow up, and that’s precisely what we asked for, ladies and gentlemen. We were hoping prices were going to slow up so we didn’t hit the next bubble. But prices are going to continue to appreciate some. And mortgage rates are going to continue to go up, and that’s going to be pretty dramatic. Here’s a graph showing what Freddie Mac predicts going forward through 2019.
Move-up buyers and first-time buyers will want to buy now instead of waiting until interest rates start to increase or continue to increase. Especially at some of the numbers we are looking at. Rates could go up in the next year for another whole half a point.
Will affordability be an issue? People say, “well, if prices are going to continue to go up and the interest rates are going up, no one’s going to be able to afford a house.” Not true. Here is, from CoreLogic, the national homebuyer’s typical mortgage payment. They went back and looked at dollars adjusted for inflation. They asked, how much was the typical mortgage payment each of these years? Assuming that a person put 20% down and had a 30 year fixed rate mortgage by the mortgage rate at the time.
What we can see is that even today, with interest rates rising and prices going up for the last five years, the typical mortgage payment is less today than it was in January 2000. Projections for next year, taking into consideration an increase in sales price and an increase in interest rate, mortgage payments will be exactly where they were in January 2000. So yes, you should buy now because it’s cheaper to buy now than it’s going to be by next year.
We are going back to where the normal market was. And with wages now beginning to increase, and prices beginning to stabilize, that’s going to continue as we go into the near future. Unsure about buying now? What’s the alternative? Rent? Here’s the median asking rent since 1988.
It’s cheaper to buy a house in the vast majority of the country than it is to rent a house. When you buy a house, for the most part you lock in your housing expense. Look what happens to your housing expense on a rental situation. Millennials were just asked, what are the most important things to you? Buying a home actually came ahead of getting married.
But buying a home wasn’t number one. Number one was saving toward their retirement. That was the single most important thing. Goal one and two can be combined. Because by buying a house IS saving for their retirement. This is a graph based on the data provided by the joint center for housing studies at Harvard University. They looked at the difference in net worth between homeowners and renters over the age of 65.
In summary, the market should still be very healthy next year. There is still a pent up buyer demand locally for homes < $400,000. Once the initial shock of interest rates going up, buyers are going to realize that even a 5% interest rate, a 51⁄2% interest rate historically, is a phenomenal rate. They’re going to get a better rate than their older brother did 10-years ago, than their parents did 20-years ago, than their grandparents got 40-years ago. It’s going to take time to get over the sticker shock. But the economy’s better and their wages are better. Fannie Mae, Freddie Mac, Mortgage Bank Association and the National Association of Realtors, think that next year’s going to be better than 2018.