The housing market appears to be suffering from some bipolarity as we close out 2018! I had to give you a more in-depth diagnosis because if you read the headlines, you will have, frankly, an irrational fear about entering the housing market in the coming year. At the end of 2017, I told you the absorption ratio was the highest it's been since the Recession. You read also this year about multiple offer situations and offers going way over asking price with few, if any, seller concessions. And most recently, you've heard some consistently inconsistent economic news. The stock marketed plummeted, only to close out the year with the highest one-day recovery on record in the midst of a government shut down. Unemployment levels are at their lowest in 50 years but wages are still stagnant. Mortgage rates reached their highest point in 9 years and the Fed increased rates for the 4th time in December, but then mortgage interest rates eased down to at 4.63%. Price gains for sellers have limited affordability for buyers, keeping many willing first-time buyers and move-up buyers/sellers on the sidelines, yet there is still a shortage of homes. Price appreciation reached nearly 6% last year is expected to give way to 3% in 2019 and 2.4% in 2020 as sales cool. The general economic news is very strong but the housing market predictions for 2019 are overall rather negative nationally. Do you also feel like hibernating a bit after reading the day-to-day headlines and my recap of the year?
I have a different perspective and am excited about the prospects for buyers and sellers in 2019. Yes, we have indications that the imbalance in the housing market is surfacing as a correction. If you keep up with my monthly review, you knew already that our sales in Southside Hampton Roads (SSHR) took a nosedive between August and Sept, but ticked back up to typical off-season levels in October & November. The number of new listings dipped below 2017 numbers at the same time but jumped above sales in October, several were recycled listings that had not sold. Some buyers are starting to accept "not perfect" and we are closing out the year with a higher absorption rate (62.8%) than any month since I started regular tracking of the data in 2011. That is 63% of the homes on the market are being sold. The largest cohort of buyers are the Millennials--who are also reaching the age of typical first time home buyers at 30. They are information saavy and they have high expectations on their first home, which they define as a milestone of financial success. They also heard the news that rates were on the rise, affecting their affordability and therefore they are making sure to get in the game, perfect or not. A microscopic evaluation of Pending Sales shows they are still 4% higher in SSHR than last year. However, the x-ray of that figure's performance shows that number is a QUARTER of the pending sales we saw at the end of 2017.
The average time on market has been a traditional definition of a buyers or sellers market, with 6 months being the threshold. Nationally, we reached a record low of 3.4 months, surpassing 2005 and Jan 2017's record of 3.5 months. Locally we are enjoying between 3.27-4.45 months on the market--a "sellers market." But sellers are accustomed to properties moving faster in our area and also expect instant results. And despite the gains in value and the shorter time on the market, sellers are still, in general, paying for closing cost assistance to help buyers afford their loans. I believed this would taper off, and it did, but it didn't disappear. And all indications are, that it is now a tradition and an expectation, whether or not a property needs an "incentive" to sell in less than 6 months.
The national predictions report that price increases are outpacing wage earnings. Coupled with mortgage rate increases, interested buyers are challenged by budget constraints. But Hampton Roads has had very strong economic growth in 2018 and wages are starting to increase. In addition, increase in jobs available in the technology and medical fields leads one to expect that to continue. The tourism and recreation industries are also experiencing growth. Our military and maritime industries have positive reports. There is a shortage of tradesmen. Due to the aforementioned factors and a shortage of appealing homes, home renovations have spiked, and refinances have dropped. Overall, 2019-2020 will be more challenging to agents and loan officers as their opportunities retract. The non-career and non-professionals will likely find work in other fields. This also is good news for buyers and sellers as they choose experienced professionals to ensure they have the edge in the more challenged market. But I predict wage growth will allow buyers more opportunities in 2019 than this past year.
At almost a decade, the second longest expansion in US History is upon us. But homes are still appreciating and we should expect that to continue between 2-4% a year. Does it mean sellers will see fewer sales within a short amount of time? Yes. Does it also mean they can have knowledge of how to best position themselves to be the chosen one and still enjoy a Seller's Market? You bet. Are seller concessions an ongoing expectation for the foreseeable future. Yes. As more of our purchases are made by Millennials, our Baby Boom sellers are going to have to appeal to their HGTV taste, the measured pace by which they make decisions, their ability to pay the high costs of financing, and their desire for instant access and information. By reviewing national trends against local data, the Housing Market RX is professional representation with a high level understanding of the local market. Let me know when I can help you with the information you need to plan for a move! Wishing you all a Happy and Healthy 2019!