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The Ann Arbor Area Housing Market: What to expect in 2019

Wednesday, October 24, 2018

What should we expect from the housing market in 2019?  After 7 strong years of an upmarket have we hit the top?

In 2019 The Ann Arbor and the Southeast Michigan housing market will experience modest increases in inventory and home prices as home builders continue to increase production of new homes. Until sufficient inventory materializes, however, the market will remain constrained. Current high prices and limited options will continue to cause buyers to wait or opt out of the market. Affordability will be further eroded as interest rates and construction costs rise. Certain market segments will see increased time on the market and even price declines as inventory builds. 

If you are planning on buying or selling a principal residence, be mindful that a family home is much more than an economic asset – it’s the place we call home and where we live our life! When making a home buying or selling decision, work with an agent team that offers experience along with a consultative approach to fully assess your needs and delivers results based on your unique situation. If you are planning or considering a move, please reach out to us for a no obligation buying or listing consultation. 

Investors, if you have been waiting for the market to rise to a level to maximize your return, that time is likely NOW! While we may see increases going forward, in most cases, expect increases to be modest on top of the already large price run-up. If you waited out the last recession to cash out a real estate investment, you won’t want to get caught in another down should that happen.  Remember that markets are cyclical with market cycles running more than 7 years.

The economy marches on. We are in a period of record economic expansion.

The economy marches on. We are in a period of record economic expansion.

 

The Economy remains strong – The economic expansion marches on! Continuous job growth for the last 8 years along with the lowest unemployment, the highest stock market have created record high wealth in the United States. We now in our tenth year of economic expansion. Unemployment in the Ann Arbor area is a record low with a rate of %4.0. 30,000 net new jobs in the Ann Arbor market since the recession. Additionally, the stock market continues to perform at record price levels. Increasing wages, record high stock prices and increasing home values have produced a period of record net worth in US households. No trigger that will send the economy into a recession even though we have been through a long period of growth.

 

 

 

Mortgage rates to rise permanently. We have been operating for several years with artificially low interest rates thanks to our government’s monetary policy to drive rates down to grow the economy. These record low rates are now gone and we expect we will see rates of  5- 5.5 percent for a 30 year fixed mortgage loan in 2019. Higher rates will reduce affordability. These rates are beginning to get back to historic levels, and are still considered historically low.

The Housing market tops in certain price ranges and areas. The market will shift from a seller’s market to a neutral or buyer’s market. In some market segments, we are already seeing a shifting market with longer times on market and increasing inventory.  

 

Home sales will be constrained because of:

Low inventory– in the past, the average home buyer looked at @10 homes. In today’s market, home buyers have to make a bid quickly or the opportunity is gone!  Consumers are frustrated with bidding wars and losing out to other offers and are pushing back, leaving the market or waiting and saving on the sidelines.

Weakening affordability. Home prices are moving higher. Mortgage rates are moving up further adding to lessened affordability. Don’t expect rates to fall back down; expect this to be a permanent trend.

Reduced buyer optimism. Even though people feel that home prices will be higher, they do not want to make a choice with limited or insufficient options.  More new homes are needed to change this. Lack of affordable new housing options is causing sellers to wait to sell and first-time buyers to not enter the market. While prices are up, unit sales and new listings are down.

Shortage of construction workers. Companies cannot find enough qualified workers in many industries including housing.

Higher construction costs. Companies are experienced higher material costs causing new construction to be increasingly expensive.

Diminished optimism of home buyers. Even though people feel that home prices will be higher, they do not want to make a choice with limited options.  More new homes are needed to change this.

 

Single-family housing starts will increase but still at a too low pace. Lack of skilled trades and construction labor, Tariffs on lumber and building materials will continue to hold back housing starts. Inventory of homes on the market has fallen every year since 2014. Single-family housing starts have never recovered from the recession levels of 2007.

 

Single-family housing starts never really recovered from the housing crash of 2007-08

Single-family housing starts never really recovered from the housing crash of 2007-08

 

 

The Housing is shifting. The market will shift from a seller’s market to a neutral or even a buyer’s market in some segments and areas. Home sales will remain stable to falling because of low inventory, weakening affordability and reduced buyer optimism. Lack of affordable new housing options will cause sellers to wait to sell and first-time buyers to not enter the market. While prices are up, unit sales and new listings are down.

If your plans include selling, buying or investing in real estate in 2019, take the time to consult with an experienced agent team like the Piper Partners Team to help clarify your objectives and provide expert advice on how best to proceed. We’ll be starting our 17th year servicing Washtenaw, Livingston and Wayne County home buyers, sellers and investors and we look forward to assist you when you are ready to make a move.

Adapted from Economic & Real Estate Outlook, by Lawrence Yun, Ph.D.. Chief Economist, National Association of REALTORS®. Presentations at Ann Arbor Association of Realtors®, Ann Arbor, MI, September 13, 2018.

 

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