One Year Ends, Another One Begins in Real Estate
The 2018 Des Moines real estate market year-end homes sold count looked very much like 2017, however if you dig deeper, you will see that in many circumstances, it was actually different from previous years. 2018 sale units were just over 2 ½% lower than 2017, the price of homes continued to rise, and the closed volume of all sales was $3.2 billion, up 1% over 2017.
The Cycle of Real Estate
There is a measure of real estate over time called the Cycle of Real Estate and there are four phases that can spread out over the course of 10 to 15 years. This cycle will sometimes follow an economic cycle but can also act on its own. The four phases are Recovery, Expansion, Over Supply and Recession.
Where is the Des Moines real estate market in this cycle as of January 1st, 2019? In order to discover this, let’s go back to the last real estate recession of 2008 (the bottom of the real estate cycle). 2009, 2010 and 2011 were recovery years and 2012 began to see more buyers return to the market. Listings, however continued to remain low as many sellers stayed out of the market. Despite the low inventory, home mortgage rates were at historic lows and a growing economy helped push us into the expansion phase through 2017.
Back to 2018
Home sales this past year did not exceed the previous year for the first time since 2009. Home prices did continue to rise in 2018 but not at the pace of the previous 5 years. 2013 saw the largest jump in Average Sale Prices gaining 8% over 2012. The Average sale price in 2018 was $222,000, a modest increase of 3.8% over 2017.
2018 was the year that the sellers began to return to the market. On paper it doesn’t look like a big increase in listing counts, but in fact, the increase fed enough hungry buyers to bring our year-end sales close to 2017.
As a result, the number of days on market pushed lower in 2018 in the most coveted price points of the under $200,000 range. With the Months of Inventory levels favoring sellers in that price point, it’s a wonder we had any homes to sell under $200,000 at all.
New construction and the higher price points, especially above $400,000 was the opposite market in 2018. With close to 40% of the entire listing inventory as new construction, a Buyer’s Market ruled. There were the occasional quick sales in the upper price ranges for resale properties, but nothing like the frenzy in the lower ranges. Expect this same scenario to repeat in 2019.
The Real Estate Cycle for Des Moines
I believe that the overall real estate market in Des Moines is nearing the end of the Expansion stage. Whether the market will peak in 2019 will remain to be seen, however if I were to apply this same cycle to just resale and new construction separately, my prediction would be that for resale properties, in particular under $300,000, there is more expansion to happen into 2019 and possibly into 2020 barring any national or economic event.
I believe that home sellers in this price point will come out in higher numbers in 2019 as soon as the weather breaks and we should expect to have an even busier spring/summer market than last year. This will also lead to a modest increase in home pricing but tempered by higher mortgage interest rates.
New construction and the higher price points above $300,000 however is another story. It is my opinion that the number of new homes for sale hit the peak of the curve and is moving toward the Over Supply stage. This segment of the market is not anywhere close to the Recession stage but an oversupply of homes for sale coupled with a shallower buyer pool, higher mortgage interest rates and the ever-increasing cost to develop land and material costs will make it a challenge for builders in 2019. If new home pricing takes a turn downward, it will make it harder for the resale inventory in the upper ranges to compete. The best time to be an existing home seller in the upper priced market is early spring and be prepared to price your home compellingly.
Final Words
2018 was most likely a slight dip year overall in the real estate cycle. The bulk of the market activity in 2019 will be in the under $300,000 price range. The “hot” market communities will continue to be Waukee, West Des Moines, Ankeny and the Northwest suburbs of Des Moines.
For an even more in-depth analysis of 2018 Des Moines real estate activity broken down by metro communities and also by single family—condo/townhome, resale—new construction, go to the most comprehensive real estate statistical resource at Facebook.com/SimplyDesMoinesStats.