2019 Gig Harbor Housing Market Forecast: Part 2 of 2
PART 2 OF 2: Gig Harbor Annual Housing Update
Paige Schulte, coming at you with video two in the market shift series. We are looking at the economic forecast for the housing market in the Gig Harbor, Bremerton, Port Orchard area in 2019.
If you didn’t see the last video, go check that out. It’s on my previous blog post and you can get the in depth background. Quick recap there was we are expecting to see house values rise but at a slower rate. A more sustainable rate, which is better for everybody unless you were a seller that didn’t want to buy something. Because you were selling really high, then probably buying pretty high.
What we’re looking at is instead of a 12% increase year over year, they’re expecting a 4% appreciation in home values in 2019. And what are the factors that are contributing to those predictions?…
We ended the last vlog reminding you to not freak out and price your property correctly. It’s more important now than ever to have a market expert that can say, “Okay, look, inventory is rising. Houses are going to sit on the market for a little bit longer. Price your property correctly, and you can meet your timing goals for selling.” If you don’t do that, you’re going to sit on the market for far longer or you need to prepare your property better. How can you accomplish this? Hire a local expert who is very familiar with your local market and an agent that can help you be educated on the actual numbers in your price point. Somebody who is actually looking at sold days on market and average price points.
Let’s talk about the definition of a recession, two quarters of economic slowdown. And forgive me if I’m looking down, I’ve got a ton of notes. I want to make sure that all the information I give you, especially because we’re talking about facts and figures, are correct. We know can’t avoid a recession. We’re going to need it at some point. What goes up must eventually come down, it happens cyclically where we’re going to see economic slow down, some correction just in total market spaces. And it doesn’t mean that the housing industry is affected.
The last four out of the six recessions, the housing market actually saw appreciation. What is hot on our minds and what we just experienced was 2006-2008 where we saw major, major depreciation in our housing values and those areas, those situations in the actual real estate industry don’t exist today.
So let’s talk about that. Back in the middle of 2018 the Wall Street Journal talked to around 35 economists and talked about the outlook of the housing market, just trying to predict when the recession is going to come and they were predicting 2020. Since then they’ve even started to adjust that outlook for an economic recession in 2021. And I want to make sure that you understand that this does not mean that this is a housing recession. We’re not looking into a housing bubble or a crash.
We might see some areas like Seattle who went crazy gangbusters, they might see a little bit of depression there in very isolated markets that were just really over saturated in terms of lack of inventory and prices skyrocketed. We had such an inventory crisis in some of the tech areas that perhaps they might see something like that, but on a national level, we’re not going to see anything like we saw in 2006 through 2008.
It turns out that those same economists are actually thinking now that we’re in 2019, that that recession is probably not going to happen until 2021.
We talked about in the last video that the hundred leading economists in the real estate industry are projecting that out of 100, 92% say that housing market will appreciate. 2% say it’ll remain neutral and 4% are saying that we might see some small decrease. But 92% of really trusted real estate advisors are saying that we’ll see appreciation happen.
So people are starting to say, “Okay, well what about interest rates? What’s going on there in the mortgage industry?” So right now there’s a little bit of sticker shock going on and so buyers are saying, “Holy smokes, what is going on?” It used to be that you could get an interest rate, in the last 2015 to 2018, somewhere between 3% and 4 1/2%. So now that we’re inching up to around 5%, buyers are freaking out a little. So their buying power has changed a little bit. They’re like, “Oh my gosh, it’s so expensive to buy a house now.”
Well, rentals haven’t gotten cheaper. So after that initial sticker shock wears off, you have that opportunity where you’re like, “Okay, now I’m going to shop around.” And once they look around a little bit more, they’re like, “Actually I’m going to go buy,” because the sticker shock has worn off.
Over the decades we’ve seen 8%, 12%, 10% and even as we expect interest rates to rise even into 2019 and get closer to 6%, we’re still way better than historical averages. National Association of Realtors, Freddie Mac, all of the big leaders in the industry are saying that we are going to see more transactions that we had in 2017 and 2018 due to the pent up demand that buyers have. Now that the buyer pool is out there, they’re more active, interest rates are keeping the housing prices in check- now contingencies are up. What is a contingency? If you have a house to sell you are considered contingent on your home selling before you buy that house. Before people couldn’t do that, so they had nowhere to go. They’re like, “If we sell our house, how do we know if we are going to be able to find something to move into?” So as inventory increases a little bit all of that demand of buyers saying, “Okay, you know what, even though interest rates are a little bit higher, it’s still better to build equity in my house,” because the rental rates are not going down. If you can even find a rental.
The good news is for buyers is that inventory will continue to increase, but the most pressured price point low inventory will continue to remain low for first time home buyers. As millennials, they’ll be our biggest target market in terms of first time home buyers. They’ve been waiting longer to purchase a house, now they’re ready. And our upper level properties are going to sit on the market longer …
If you have a luxury property- It’s going to be more important that you price correctly, that you’re with an agent who can educate you on your pricing strategy and then that you prepare your home in the best possible light because you’re going to have more competition. There are going to be more houses on the market in your price point and you’ve got to stand out and look the best. So prepare your home or price it to reflect that it might need some work.
Getting back to those millennials. Their number one priority is to save for retirement and their number two priority is to buy a house, and what helps with that? Buying a house helps save for retirement and a lot of that is us as agents educating them on equity. Then their number third priority is to get married. So it’s a interesting little sequence of events because it hasn’t always been like that.
But if you have a starter home, you’re going to be in a very hot market in terms of millennials coming in and having the buying power. So your actual segment of the market, those micro markets that we talk about, is going to be a really low inventory, high demand. If you are looking at that movable middle and want to move as a move up buyer, then you’re going to have more inventory and possibly have some more leeway and buying power, because you won’t be buying in such a compressed market there. You’ll have a little bit more inventory to choose from, which is exciting.
Overall we are expecting 2019 to be a really great year, more transactions, more inventory. So why does that matter? Sellers who really want to sell and move on with some of their hopes and dreams for what they have planned, there’s going to be a house for you to buy and that is something that is really good news. But as we go into a time with more inventory, it will be important to find a local expert that can educate you on what do the comps look like, who’s going on tour? Have they seen the inside of the house that’s down the street from them? Instead of choosing somebody from online or having your agent from 30, 45 even 60 minutes away that doesn’t know your market sell your house.
Sellers make sure your agent can educate you so you can meet your expectations. If you are going to hold out for that one buyer that will pay top dollar for your house, then expect to possibly be on the market for awhile because at some point there’s a saturation point. If there’s four months of inventory. Are you going to be one of the houses that sells in that four months or are you going to be on the market longer than the average days- how is your price and condition?
It is my job is to set the expectation for my sellers based on their goals. So if it’s price, then maybe we sit on the market longer. If it’s timeline, I need to sell this house really fast, because you fell in love with your dream home in Indiana then as your agent, I need to get this house sold. So how do we get the most for our money in the shortest amount of time, which is typically most seller’s goals.
But What about the bubble, I heard this over and over during the holidays? Interest rates were not an indicator of the crash in 2006 and 2007. So if you look at what are the determining factors of what happened, obviously people were getting into loan structures that they couldn’t afford when those arms came due. That isn’t happening right now.
Right now people are saying well, people are starting to refinance more, isn’t that a bad sign? We’re starting to see more cash out refinances because people are starting to say, “You know what? All right, look, I love my house. I’m going to start putting some money into it and I’m going to start doing some remodeling and investing in it.”
Here is a fun fact: I got this from a trusted source who also checked their sources, Keeping Current Matters, quoted that, “Today in this country 48% of houses have at least 50% equity in them,” which is crazy. Steve Harney of Keeping Current Matters says that that is absolutely true and that means that equity and cash out refinancing is something that people are doing but they are so much more conservative right now.
But how much are they taking out? We’re digging deep into the numbers. In 2005 to 2007, $824 billion was taken out of homes, out of their equity in their homes and they were spending it on lavish vacations, cars, items that depreciate in value the minute you buy them. If you look at today, the tappable equity for homes right now is 21% over the 2006 numbers. So we have more equity than ever, yet the amount that people are taking out is much lower. We’re at $172 billion compared to $824 billion for cash out refinancing. So we’ve gotten smarter as homeowners and as consumers and we’re more responsible and they’re using them for remodels, new businesses or college for kids-smart investing.
The last 10 years, if you had a really good business idea, you now have the equity to get that started. College and items or experiences that will help bring more buying power and appreciating assets instead of investing in depreciating assets like in 2005 when people were buying cars with their home equity. Finally-
There was a lot of fraud in the lending industry. Now there’s so much more regulation for lenders and for appraisers. So if you have sold a house recently, you know that the appraiser is basically talking to a black hole. Get trusted mortgage adviser. Megan Higgs, Ryan Buys, Ryan Johanas, all of them are coming out with really great information about the mortgage industry and your agent should be able to educate you too on what is actually happening. Because right now we’re seeing the ability to get sucked in to national TV narratives that make headlines for people to react and sell good advertising. But get the actual facts from the lending standards and the lenders that are out there, we’ll see interest rates continue to creep up that will continue to keep the market in check and make sure that buyers are qualified.
Lets wrap up: Contact your agent. LOL That’s in my notes, tell you contact your agent. Hi, I’m Paige. Or anybody, there are tons of great agents out here in the Gig Harbor market or Bremerton or wherever you’re watching this. Just find somebody local that spends time on the facts. It’s data and numbers are the sexy part of the business, but it’s super important and it will make your life so much less stressful when you’re educated on where the housing market is and where your house is within that macro market. Where’s your micro market and what is the story for your house?
Find an agent that will teach you about how to prepare your house instead of sell you on here’s all the things I can do for you. The great agents at the top can all do really great things for you and so then it comes down to personality and communication styles, but the neighborhood expert and that knowledge broker is somebody that’s going to educate you and teach you. That way when things get stressful during the transaction, the house doesn’t sell very well, there’s tiny little movement in the market as we see, a shift. We always see a little bit of decreased home values in the winter and you have to have somebody who has experience with guiding people through that. Going into the spring, how are we going to prepare for that upswing of buyers and the excitement that happens with more inventory?
We have all of this strife and tension that people want to create in the marketplace and when you sit down and you calm down, look at the facts, come up with a plan and then act on it, you’re educated and the buying process is so much easier. Find an agent who is going to lead you to where the numbers are for your house and make the most money you can in the shortest amount of time and get on with where the next phase of your life is going.
I’m super excited about 2019. I think it is going to be one of the best years in the housing market. I think that it’s a combination of having more options. The only caveat I will say to that is that new construction is down, so there’s still going to be a shortage of new construction, especially in the first time home buyer market because it’s more expensive right now. There’s not enough laborers, construction materials are more expensive and so they’re building more homes in the more expensive kind of movable middle and they’re not building enough starter homes. So that’s why the inventory issue is not going to completely go away at first time home buyer level.
But overall, we will see a really strong 2019 and I’m excited to walk that path with you if I’m the agent that you might choose, but certainly give me a call, give me a chance to talk you through how I market a property, and then how I would position it to be the most competitive. Go out and have a great 2019 and I wish you all the success in the goals that you have. I’ll talk to you soon.
Happy Homes and Big Hugs,