Much has been made about what many have termed a slowing housing market. Most economic experts predicted the housing boom of the last few years would slow down quite a bit in 2019 after the slowdown started at the end of 2018. Their predictions seemed to come true sooner than they had even expected.
In January, the National Association of Realtors reported that home sales dropped a large 8.5 percent from January 2017, which marked the lowest sales month since 2015. This information helped fuel the rhetoric that there would be bad times ahead for the housing market in 2019, especially for people who planned on listing their homes for sale.
Not only would these homes stay on the market longer, experts predicted, they would sell for a much lower price than they would have less than a year ago. What caused the slowdown was a rise in mortgage interest rates coupled with rising home prices over the last few years that finally got out of whack compared to potential homebuyers’ salaries.
With worries about this slowdown in the U.S., plus fears of a potential economic slowdown happening across the globe, the Federal Reserve was quick to react. Instead of increasing interest rates twice in 2019, as the Fed originally expected it would, officials said they don’t foresee a bump in interest rates happening at all in 2019, now.
It seemed in January that everything was lining up according to what these experts had predicted. But if you look closer at some of the stats, other information about the housing market and the overall strength of the American economy and job market, you’ll find not only is the real estate market not in trouble, it’s still doing well.
The Drop in Home Sales Came from Low-Priced Homes
If you dig below the surface of the NAR’s report for January, you’ll see some interesting statistics. While home sales dropped across the board in January year over year, the drop was much larger in lower-priced homes. When broken down by price, here is the percent that homes in different categories dropped in terms of sales in January 2019 versus January 2018:
- $0-$100k: -14.8 percent
- $100k-$200k: -9.7 percent
- $250k-$500k: -3.2 percent
- $500k-$750k: -5.3 percent
- $750k-$1M: -1.7 percent
- $1M+: -3.2 percent
True, home sales did drop at every price level in January, but the lower-priced homes are the ones that are likely most affected by actual or predicted changes in mortgage rates. After steady climbs in the average 30-year fixed-rate mortgage for much of 2018, interest rates have begun to come back down. The average interest rate on a 30-year fixed-rate mortgage was 4.27 percent in March, according to Freddie Mac, which is the lowest it’s been since January 2018.
With this continued drop in mortgage rates, and now that the spring real estate market is here, it’s expected the lower-priced cohort of homes will see a nice bounce back in coming months.
February Home Sales Bounced Back Nicely
Just one month later, this forecast seemed to come true somewhat. The same breakdown as above for February 2019 versus February 2018 was:
- $0-$100k: -10.7 percent
- $100k-$200k: 0.0 percent
- $250k-$500k: 4.4 percent
- $500k-$750k: 2.9 percent
- $750k-$1M: -0.8 percent
- $1M+: -6.4 percent
In just one months’ time, home sales improved drastically for almost every price segment, except homes that were priced at $1 million or more. Frankly, too, that price segment is the least significant indicator of the health of the housing market, as only 2.7 percent of all home sales in February were in that price range.
Home Sales Are Fairly Strong, Except in the West
If you take an even deeper dive into February’s statistics, it’s easy to see that home sales in the West – or a lack thereof – is what is causing overall single-family home sales to drop. In all four regions of the country the NAR breaks down the data for (Northeast, Midwest, South and West), home sales in the $100,000 or less price range dropped year over year in February.
Above that price range, though, things looked much brighter for most of the country. The Northeast and South, for example, both saw increases in existing single-family home sales for every price segment except the less than $100,000 cohort. The Midwest, meanwhile, saw gains in every price segment except the $1 million-plus homes.
It was only in the West where home sales struggled almost across the board. That region showed losses in every price segment, except between $500,000-$750,000, where home sales increased by a meager 0.7 percent.
So, when you look even deeper into the data, it becomes more apparent that the housing market isn’t performing poorly across the entire country for all homes. In contrast, the market is actually performing very well. And even in the West, existing single-family home sales could be in for a rebound in coming months with potential for continued lowering of mortgage interest rates.
Current Homeowners Are Building Equity in Their Homes
The state of the housing market is not all based around single-family home sales data, even if those are the numbers most often thrown around. What’s also important when gaging the health of the market is how current homeowners are doing in their home. Specifically, what are the rates of foreclosure? And how is equity growing?
According to a March CoreLogic report, both data points are doing well.
Each month, CoreLogic releases a Loan Performance Insights Report, and the one it released in March showed delinquent mortgages declined in December 2018 when compared to December 2017. In December 2018, the national rate of mortgages in delinquency – defined as those that are 30 days or more past due, including homes in foreclosure – was 4.1 percent. That marked a 1.2 percent drop in delinquency from December 2017, when the rate was 5.3 percent.
The overall foreclosure inventory rate dropped 0.2 percent year over year as well, finishing at 0.4 percent overall. The rate, which is a measure of the share of mortgages that are in a stage of foreclosure, stayed stable from November 2018, marking the lowest two months of that measure since January 2000.
The CoreLogic report highlighted that fewer homes overall are classified as delinquent, and fewer homes that are delinquent are moving to more serious stages of foreclosure – from, say, 30 days past due to transitioning to a full foreclosure with the bank taking possession of a home.
In addition to this positive news, CoreLogic reported that homeowners across the country built a nice amount of equity in their homes in 2018. Nationwide, the average homeowner realized a $9,700 increase in the equity of their home. Building equity not only helps to lower the foreclosure rate, it also gives homeowners more power to borrow if they need to or invest in other places.
The Job Market Is Strong
One of the biggest factors of how the housing market performs is how strong the job market is. And strong it is. In February, the national unemployment rate was 3.8 percent.
The national job market has been building momentum for the last few years now. The national unemployment rate hasn’t hit 5.0 percent since September 2016, according to the U.S. Bureau of Labor Statistics. Over the last year, the job market has been even stronger, with the unemployment rate reaching 4.0 percent or higher in only five of the last 14 months.
This strong job market is not predicted to go anywhere anytime soon, especially with the American economy rocking and rolling as it’s been. This strong job market continues to fuel the demand for new housing, and continues to push prices for both existing single-family homes sales as well as rental rates for single-family homes higher and higher.
Home Prices Are Still Rising
Despite overall sales of existing single-family homes dropping in the early part of this year – at least nationally – the price of home sales has been steadily on the rise. According to the NAR report, the median existing home price reached $247,500 in January, a 2.8 percent increase from January 2018’s mark of $240,800. January marked the 83rd month in a row of positive gains year over year for housing prices across the country.
In addition to predicting that home sales would slump in 2019, many experts predicted home prices would begin to drop, too. But that doesn’t look like it will be the case. Instead, what might drop is the rate by which home prices are increasing, but not the fact that they will still increase.
In January, the NAR released its REALTORS Confidence Index Survey, which found that those surveyed predicted the median price of existing single-family homes would increase at 2 percent nationally for the next 12 months. That increase would be termed modest compared to what happened the last few years, but it represents an increase nonetheless.
As long as home prices continue to rise – no matter what it is fueled by – and as long as the total number of existing single-family home sales doesn’t consistently drop month over month in all areas of the country, then it’s hard to term the housing market as anything but positive, healthy and strong.