In Blog Eric Frazier

“Incomes are not keeping pace with home prices in major metropolitan areas.  Most homes for sales in these markets are overvalued because of low supply and high demand.  Home prices are not sustainable because the incomes are not rising at the same rate.  A correction is coming.  Buy Income property as your hedge questionable prices.”

– Eric Lawrence Frazier MBA

 

For the first time in ten years, the market showed all signs of softening. Real estate experts and economists continue to have a positive outlook for the U.S economy, predicting a stronger capital market, and real estate through 2021. Earlier predictions would have buffeted the economy due to the trade disputes, increased tariffs, stock market volatility, and reduced global growth prospects. However, these barriers have had little to no impact on the medium-term economic and real estate market expectations.

Researchers at realtor.com revised their yearly outlook, revising up the price growth and overall sales predictions as lower-than-expected interest rates making homeownership more affordable. The U.S home prices are now expected to rise by nearly 3%, an increase from the previous forecast of 2.2%. The overall sales are predicted to flatline in 2019 as compared to 2018, declining only 0.3% by the end of the year.

“The 2019 housing market is different than what we predicted in fall 2018, primarily due to an unexpected drop in mortgage rates in January 2019,” said Danielle Hale, Realtor.com’s chief economist.

CoreLogic’s HPI Forecast for May 2019 shows home prices have risen both years over year and month over month. The price has increased nationally by 3.6% from May 2018. Month over month, the prices have increased by 0.9%.

We have seen some moderation in the market for several months, however, the HPI forecast predicts a 5.6% rise from May 2019 to May 2020. On a month to month basis, the prices are expected to rise by 0.8% from May 2019 to June 2019, bringing single-family home prices to an all-time high.

 “Interest rates on fixed-rate mortgages fell by nearly one percentage point between November 2018 and this May,” said Dr. Frank Nothaft, chief economist at CoreLogic. “This has been a shot-in-the-arm for home sales. Sales gained momentum in May and annual home-price growth accelerated for the first time since March 2018.”

A separate survey of 100 real estate economists in March found that there was an improved outlook for the real estate market in 2019. Experts predicted a rise to an average of 4.3% through 2019, which is an increase from the average 3.8% forecasted during Q4 of 2018. “The downturn in mortgage rates since our previous survey appears to have elevated price expectations for 2019,” said Terry Loebs, founder of Pulsenomics, which conducts the Zillow survey each quarter.

According to the CoreLogic Market Condition Indicators (MCI), housing stock forms the main basis for the analysis of housing values in the country’s 100 largest metros, 38% of the metros have an overvalued housing market as of May 2019. Even though the labor market is doing well, most Americans are eager to get into a home, the demand rises up and so does the price for homes, however, wages do not follow suit, therefore, buyers remain priced out. What CoreLogic is saying is that homes in these metro areas are priced at least 10% higher than the long-term standards, and the local incomes are not expected to support the prices. “Lower affordability means it is harder for people to get on the track of building home equity. This can have long term negative effects on wealth building,” says Mark Chin, CEO of Keller Williams Tribeca. “Since credit is loosening again (partial-doc loans are back), this could create a credit crisis as purchasers stretch beyond their comfortable limit to purchase homes. In an economic downturn, this can be disastrous (as it was in the Great Recession).”

CoreLogic MCI analysis categorizes home prices in individual markets as undervalued, at value, or overvalued, by comparing home prices to their long-run, sustainable levels supported by the local market fundamentals. As of May 2019, 24% of the top 100 metropolitan areas were undervalued, while 38% were at value.

Mortgage rates rose steadily in November, to almost 5% and this put most buyers out of the market at the end of 2018. This further fueled predictions of a broad cooldown in the housing market. However, the Fed took on a different course in its monetary policy tightening it at the start of this year, and maintaining that it would hold the interest rates steady. The change in monetary policy brought interest rates down to 4% providing buyers with more room in their budgets. Initially, realtor.com expected the rates to average at about 5.5% in 2019 but has now revised the rates to 4.5%. “This will create a slightly hotter, but still cooling housing market relative to the initial forecast five months ago,” Ms. Hale wrote.

During Q1 of 2019, CoreLogic conducted research measuring the consumer-housing sentiment in high-priced markets. Given the sharp rise in home prices in these areas, 28% of homeowners were concerned about their ability to afford replacement homes. 40% of the homeowners said that they were comfortable moving outside of their current market to afford another home.

“The recent and forecasted acceleration in home prices is a good and bad thing at the same time,” said Frank Martell, president, and CEO of CoreLogic. “Higher prices and a lack of affordable homes are two of the most challenging issues in housing today, and every buyer, seller and industry participant are being impacted. The long-term solution lies in expanding supply, which will require aggressive and effective collaboration between policymakers, state and local government entities and home builders.”

I remain optimistic about the market and the housing prospects for the rest of 2019. Even if the economy destabilizes and the wages slow, it is likely that the market is primed for a rebound. One reason for this is the continued influx of millennials who reaching the age of buying homes. This will put demand pressure for some years to come. So, going by this, I think the long-term trends are good. Economists since 2016 have predicted a recession and even if it hits, the housing sector will be impacted, but not devasted, as compared to the 2008 recession. However, even though there is some relief for the market, I wouldn’t get too comfortable. I think after the long post-recession retro; it was only fair to give it a break. However, the break is only short term. What we can hope for is more inventory to bring down prices to levels that people can afford.  But Hope as great as Hope is, it is not a strategy. If first time home buyers want to have hedge against the uncertainties of the economy and housing prices, then they should buy a 4-unit property.   The down payment is only 3 to 3.5% depending on the mortgage program.   Live in one unit and rent out the other three. Save the money you are currently paying in rent and build a true hedge against just about everything that can happen in life with cash in the bank and passive income.  To learn more about this strategy contact me.  The Power Is Now to buy!

The Power Is Now strives to bring you the latest developments in real estate economics, mortgage lending and the market. We are committed to making sure that you are updated with what’s happening around you and to be your resource acquisitions and sells.   We are partnered with great agents across the country and with First Bank to provide the products and programs that First Time Homebuyers need to buy a home or income property now because tomorrow it will be even more difficult. Go to www.applytobuynow.com and get started today.  The Power to buy is now!

Eric Lawrence Frazier MBA
Vice President and Mortgage Advisor of First Bank
NMLS 461807
President and CEO of The Power Is Now Inc.
CalDRE 01143484
www.thepowerisnow.com

 

Works Cited
Conerly, Bill. “Housing Will Weaken Further In 2019 And 2020.” Forbes, 20 Apr. 2019, www.forbes.com/sites/billconerly/2019/04/20/housing-will-weaken-further-in-2019-and-2020/#58ec22f11152.
“CoreLogic Reports May Home Prices Increased by 3.6% Year Over Year.” Corelogic.Com, 2019, www.corelogic.com/news/corelogic-reports-may-home-prices-increased-by-3.6-percent-year-over-year.aspx?WT.mc_id=crlg_190702_Nkow0. Accessed 6 July 2019.
Desjardins, Jeff. “Map: Where Real Estate Prices Are Rising Fastest.” Visual Capitalist, 12 Mar. 2019, www.visualcapitalist.com/map-where-real-estate-prices-are-rising-fastest/. Accessed 6 July 2019.
Maher, William. “Real Estate Economists Forecast Slower Growth and Returns in 2021 – Urban Land Magazine.” Urban Land Magazine, 3 June 2019, urbanland.uli.org/capital-markets/real-estate-economists-forecast-slower-growth-and-returns-in-2021/. Accessed 6 July 2019.
Redfin. “Redfin Report: May Home Prices Up 3.6% in May, the Largest Year-Over-Year Increase in 7 Months.” Prnewswire.Com, 20 June 2019, www.prnewswire.com/news-releases/redfin-report-may-home-prices-up-3-6-in-may-the-largest-year-over-year-increase-in-7-months-300871888.html. Accessed 6 July 2019.
Sherman, Erik. “A Majority of Economists Think the Next Recession Will Come by the 2020 Election.” Fortune, Fortune, 4 June 2019, fortune.com/2019/06/04/next-recession-2020-predictions/. Accessed 6 July 2019.
Strum, Beckie. “Economists Give U.S. Housing Market Rosier Forecast.” Mansionglobal.Com, Mansion Global, 23 Apr. 2019, www.mansionglobal.com/articles/economists-give-u-s-housing-market-rosier-forecast-201472. Accessed 6 July 2019.
“What It Means to Be in an Overvalued Housing Market | House Method.” Housemethod.Com, 2018, housemethod.com/real-estate/what-overvalued-housing-market-means/. Accessed 6 July 2019.
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