2018 Housing Market Economics
The overwhelming sense in speaiking with people these days is about a hot market. People talk. They hear about multiple offers, quick sales and rising prices. We see that too. Interestingly though, there has always been multiple facets to understanding the entire real estate market, and increasingly so this year. As any Realtor: 2018 has been a strange year.
News of the Wierd
How can the home market everyone thinks is so hot right now all the sudden be a red flag for the next recession? This CNN news article seems to point out how the fact that home sales are slowing as a factor of rising prices and rising interest making homes too expensive. While not an economist, I'd say this is garbage. I've been talking to people all year about the slowing home market, to the disbelief of many, but not becuase of home price, a higher standardized tax decuction, or higher interest rates. In one word.....SUPPLY. We have multiple offers on so many homes now becuase buyer's are waiting until they find what they want. They tend to want the same things, so thats why some homes get multiple offers in the first week, and others sit on the market. Homes above $400,000 are a slightly different story. In that submarket (locally) we seem to have more supply than buyers.
The graph below also shows that despite a slowing market, the overal units sold has maintained a healthy climb. Its disturbing to hear them compare the easy lending of 2005 with what they believe is easy lending today. Both the purchase and refinance lending market have found what feels like an equilibrium compared to the insanity of the early 2000's. Buyer behavior is also more measured and cautious. I remember people buying homes in one city while they were applying for jobs in another, or couples getting ready for marriage, and buying homes seperately, only to have to sell one wihin months, and of course in 2004-6, NO MONEY DOWN was in effect fueling plenty of irresponsible purchases.
Homes are taking longer to prepare, and seller's are often times finding a home before they sell, sometimes moving in to a new home before the old one even hits the market. This type of cautious behavior is mainly due to the low inventory levels, but smart home seller's are taking more time and spending more money to get their homes ready than ever before. The cause of this, I would attribute to the massive increase in both digital photography quality, and the massive increase in internet speed and access to listings and listing photos. Effort has to be made to showcase homes, because decions are made on apps and onine about homes, where 15 years ago, when photos weren't even required on listings, and most home listings had less than 10 grainy and distorted pictures.
I'm not sure, but in talking with my elders in real estate, I get the sense that "First Time Home Buyers" have never been branded based upon their generation. As a Gen X'er, I don't recall anyone specifying my generation as a first time buyer, only that I was indeed a first time home buyer. Millenials are different. The Millenial First Time Home Buyer (hereinafter referred to as an MFTHB) likes 'turn key', move in ready homes. They like nice homes, already updated, and they'll pay money so that they don't have to do the work. Sweat equity doesn't come up in conversation. Rehabbers love them. Existing home seller's, not so much. Inspection notices in 2018 are more extensive, with more inspections being performed, higher costs paid, and more things that most seller's are having to fix.
Rentals to the Rescue
One factor that many don't seem to be considering about the housing market slowing is the number of high quality rental being introduced to the market. Multifamily buidlings leading up to the great recession were frequently condos and lofts. Due to the amount of developoer fraud, getting financing to develop condominiums has become very challenging, making large scale developments turn instead to hotels and apartments. Shortly after the Great Recession, when the housing market was struggling more than ever, the cry everywhere was that the Millenials weren't buying homes and were more satisfied living with Mom and Dad, or still renting. This added more fuel to the fire for rental developments. Having higher quality, new construction is what people often times want. So what if its an aparment?
Housing Market Parting Thoughts
These observations are probably just a start on why the market has been strange in 2018. What's gone on in the past will most likely happen. We scratch our heads and try to figure it out, then it changes again. I'll be attending a national agent seminar specifically for mega agents next week in Austin, and we may have more details about the markets nationally that either support or modify our view from St. Louie. Our hope is that things keep moving forward and growing, even if its at a slower pace. The last housing market recession was enough for me!