A rise in mortgage rates and slower appreciation growth is shifting more negotiating power to buyers in 2019.
Home values moved 5.1 percent higher in November when compared to November 2017, according to CoreLogic. Appreciation growth, however, is starting to dip from its 5.4 percent annual gain in October, and is expected to drop to 4.8 percent growth in home values by November 2019, CoreLogic said.
Inventories are also starting to increase, according to the National Association of Realtors. And as buyers have more choice, sellers are lowering asking prices thanks to the healthier competition.
“The rise in mortgage rates has dampened buyer demand and slowed home-price growth,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Interest rates for new 30-year fixed-rate loans averaged 4.9 percent during November, the highest monthly average since February 2011. These higher rates and home prices have reduced buyer affordability. Home sellers are responding by lowering their asking price, which is reflected in the slowing growth of the CoreLogic Home Price Index.”
Home sales should top at about 5.3 million for 2018, according to NAR, which is a similar sales performance to 2000.
“Given the 17 million more jobs now compared to the turn of the century, home sales are clearly underperforming today,” said Lawrence Yun, chief economist for NAR. “That also means there is a steady longer-term growth potential.”
In an analysis of home values in the country’s 100 largest metros based on housing stock, 35 percent of metropolitan areas have an overvalued housing market as of November 2018, according to CoreLogic. About 27 percent of the top 100 metropolitan areas were undervalued, and 38 percent were at value.
Increasing mortgage rates add another dynamic that might prove to deter would-be buyers and force homeowners to stay put. The U.S. Federal Reserve signaled it would raise rates to 2.5 percent in December 2018, 3 percent in 2019, and 3.5 percent in 2020, but Daryl Fairweather, Redfin’s chief economist, said it could be as high as 5.5 percent at year’s end.
The state and perceptions of the economy will continue to affect homeownership and perceived property values, according to Frank Martell, CEO of CoreLogic.
“A strong economy helps homeowners feel confident about the value of their property,” Martell said. “If recent declines in the stock market shakes consumer confidence in the national economy, we may see homeowners’ perception of home value change and a subsequent buyers’ market emerge in 2019.”