Lessons from the Pros

Real Estate

Is There a Slow Down in the Real Estate Market?

I’ve been through three big boom and bust cycles in my Real Estate Investing career (yes, I’m showing my age). The fact is, cycles are part of any market or economy and will always be.  However, down turns like the Great Recession are fewer and farther between. So, when talk starts circulating about a slowdown in the real estate market, possibly even leading to a bubble burst, don’t panic; instead, let’s take a realistic look at the health of the housing market.
Businessman looking through telescope at homes

Currently, there are many healthy economic indicators: the job market is strong with the lowest unemployment in 18 years, mortgage regulations are still tight, there is decent stability in the financial markets, foreclosures are at the lowest level in 13 years and the economy is growing.  Considering all these factors and a few areas of strength in the real estate market itself, I don’t believe we are poised for a big bubble that would include a 50% loss in equity.  On the other hand, I do see some areas of concern in the real estate market we should keep an eye on.

Where Are We Seeing Strength in the Real Estate Market?

  • Housing prices expected to increase 3.1% nationally this year
  • We are seeing historically low home foreclosures which indicates people are living within their means
  • Millennial’s are moving into the middle class

Where Are We Seeing Weaknesses in the Real Estate Market?

  • A decline in housing affordability due to the possibility of higher interest rates and the cap on mortgage interest and state and local tax deductions.
  • Labor and material cost for building single family homes are expensive and unpredictable
  • Impending rise in interest rates (every time I think interest rates have to rise, they go down)
  • Pull back from foreign investors – With the Chinese at the top of the list
  • Decrease in real estate sales volume
  • Increasing DOM (Days on Market)
  • A slowdown in the construction of rental units

What Do Real Estate Institutions Say About the Market?

National Association of Realtors

The NAR expects sales to increase 1 percent to about 5.4 million and the median home price to rise 3.1 percent to around $266,800 in 2019. ‘The forecast for home sales will be very boring — meaning stable,’ said Lawrence Yun, NAR Chief Economist. ‘Home-price appreciation will slow down. The days of easy price gains are coming to an end, but prices will continue to rise, Yun said. Yun also added, ‘All indications are that we have a housing shortage. If you look at population growth and job growth, it is clear that we are not producing enough houses.’


According to an article on TheRealSource.com, Danielle Hale, chief economist for Realtor.com state, ‘Inventory will continue to increase next year, but unless there is a major shift in the economic trajectory, we don’t expect a buyer’s market on the horizon within the next five years.’

National Association of Home Builders

Free Real Estate Investing WorkshopAs published in Professional Builder, the NAHB expects new-home sales to be around 628,000, which is the same as 2018. Single-family home construction is expected to increase nearly 2 percent to around 900,000 units. Based on demographics, that’s 200,000 to 300,000 less than the market could absorb and well below the average number of starts pre-housing crash where the average was  1.3 million.

‘The market has been moving away from higher-end, higher-priced, larger homes over the last two or three years to more entry level,’ said Robert Dietz, Chief Economist for the National Association of Home Builder. ‘Our surveys show we’ve gone from a new construction market that had been less than 20 percent dedicated to first-time home buyers to now closer to 30 percent, which is closer to historic norms.’


On the impact of interest rate hikes, Greg McBride, bankrate.com Chief Financial Analyst said. ‘Each rate hike means the minimum payment on a $30,000 home-equity line increases by $6. I expect the Fed to raise rates twice in 2019, bringing the increase in minimum payments to $12.50 per month by year end.’  If that is the case, interest rates should not have a huge impact on mortgage payments or home sales.

Good Fortune,

Diana D. Hill – Diana@OTARealEstate.com

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.