The pendulum is beginning to swing from an acute seller’s market and moving toward an even playing field in 2019. This is happening at exactly the time it should, which is to say that the shift is happening now that buyers are finally fed up enough with today’s home prices that they are willing to walk away.
Some people call this an affordability problem. I call it smart negotiating. When a buyer is willing to say, “That house is not worth $240,000” and then follow the statement up by walking away, that is healthy. When that behavior happens at scale, it signals a market shift. Eventually, sellers will capitulate and lower their sales prices, which brings buyers back to the table.
Supply and demand in perfect harmony.
This situation has been evolving over the course of 2018, and now it is coming to fruition. It was easy to see this shift coming if you knew what to watch for, and you need to keep a close eye on two market indicators in particular in the coming year if you want to stay ahead of the game.
Indicator #1: Changes in Data
If you track home prices long term, you can’t ignore the trend line. The trend line (the straight red line in the graph on opposite page) begins at the starting point of the period you are tracking, splits the peak-and-trough, then carries forward.
The last 20 years were a stress test for the housing market. First, you see a calm beginning in the late 1990s, then a boom that tested the limits at the high side, and a crash that found a bottom. Finally, you see the recovery.
In 2017, home prices had almost caught up with the long-term trend line. We would now expect them to flatten out to a 4 percent increase in median home prices nationally in 2019. Right on schedule, buyer and seller behavior begins to change.
Indicator #2: Changes in Human Behavior
When bidding wars are the core behavior in a market, it’s time for a change. Things in a market can only stay lopsided for so long before a trend reverses. So, in 2017 and 2018, when buyers were climbing over each other to pay ever higher prices, and sellers sat on their thrones like kings and queens, it was clear from that extreme behavior things would have to shift. Now, as we near the end of 2018, they are.
At the end of 2018, sellers are already becoming more realistic and buyers are becoming increasingly stubborn. If this continues, inventory will accumulate again. Today’s fears of a bubble and low affordability will be replaced by fears of “home prices plummeting,” which is nonsense.
As long as there is no meddling, the market will move in a gradual, reasonable upward trajectory. I would predict 3-5 percent a year nationally. Any more than that, and you have to expect to give some back via another market shift. Any less, and there is upside on the horizon.
0 Comments