From lot scarcity and skilled labor shortages to rising interest rates and higher material costs, builders faced a number of challenges in 2018. What can they expect in the coming year? Here are five key housing market predictions for 2019.
- Higher mortgage rates: Although they have been steadily rising for two years, U.S. mortgage rates are still lower than they were during the recession. They are also below average for the kind of economic growth the nation has experienced recently. According to Zillow, this is will change in 2019. The online real estate database company projects the 30-year, fixed-rate mortgage to reach 5.8 percent in the coming year. If it does, it would be at its highest point since 2008. This would combine with rising home values to make home ownership less affordable. As rising mortgage payments eclipse home-value gains, more and more homeowners are likely to stay put, leading to even less inventory.
- Limited selection: For the 2019 home buyer, one of the greatest difficulties will focus on reconciling needs, wants and budget limitations. Although Realtor.com® projects that the number of available properties will increase in the coming year, most of these will fall within the mid- to higher-end price tier. Unfortunately, escalating prices and increasing mortgage rates will make most new inventory too expensive for first-time home buyers, who face a troubling scarcity of entry-level homes.
- Concern about natural disasters: According to Professional Builder magazine, a growing number of buyers are expressing concern over past, present and future natural disasters when choosing a new home. Experts anticipate that communities impacted by fire, earthquakes and extreme weather in 2018 will increasingly look for resilient construction.
- Skyrocketing prices: According to projections from Realtor.com®, buying a home will be even more expensive in the coming year, thanks to ever-increasing home values and elevated mortgage rates. For buyers who are able to remain in the market, this won’t necessarily be a bad thing, as they find themselves facing less competition. On the other hand, they will feel pressure to close quickly before inventory gets even more expensive.
- Pickier buyers: While 2019 is expected to bring another seller’s market, less buyer competition will give buyers more leverage. According to Realtor.com®, builders shouldn’t always expect to get their requested price in full like they did in 2018. To move their properties, above-median priced sellers may have to lower their asking prices and offer incentives. With less buyer demand, it will take longer to sell a home, and there won’t be as many bidding wars. With that said, as long as inventory remains limited, builders are positioned to see considerable profits in 2019, as long as they build the right types of properties and price them competitively.
Things to Consider
In its Economic and Strategic Research Group report, Fannie Mae offered a pessimistic outlook on the 2019 housing market. When listing its chief concerns, the Federal National Mortgage Association singled out rising interest rates and declining housing sentiment from both lenders and consumers. The report included key numbers which show new housing starts staying steady until 2020. Housing prices are also expected to see only modest elevations, growing from an average of about $340,000 in the third quarter of 2018 to just under $370,000 in the last quarter of 2019.
With that said, as population growth drives an increasing demand for homes, the construction industry is expected to become one of the fastest-growing industries in 2019 and beyond. Construction revenue is expected to reach $1.5 trillion by 2022, with residential building accounting for $571 billion. While builders face very real challenges in 2019, these won’t last forever. As builders and local communities develop solutions for addressing inventory shortages, new innovations are expected to pave the way for the construction industry to achieve its growth potential.
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