Earlier this month I had the opportunity to travel to San Francisco, CA to attend the National Association of Realtors annual convention. The one session that I look forward to each year is the Residential Economic Issues & Trends Forum presented by the National Association of Realtors Chief Economist Dr. Lawrence Yun.
Each year, Dr Yun describes the national economy of real estate and gives insight to the direction of the market for the coming year. He is a mentor of mine and I have been able to take the information that he provides at a national level and compare it to our local real estate market.
In this month’s article, I will take key points from his presentation and apply it to the state of the market in central Iowa. And as promised in my last report, I will make some local market year-end predictions for this year and a forecast of 2020.
Mortgage Interest Rates: Nationally 3.8%, Locally 3.5%
This time last year, national mortgage interest rates were hitting 5%. Locally we were seeing mortgage interest rates in the mid 4% range. Consumers were backing off at 4½%–5% saying the cost to purchase was too high. This year mortgage interest rates locally are back down to the 3½% range and that has helped keep our sales stronger as we move to the end of the year.
Existing and New Home Sales: On the Rise Nationally, Even Locally
Local home sales for 2019 compared to 2018 have lagged slightly this year. This has been true all year tied to our late spring start and very low sales during January and February from heavy snow events. As we push toward the last month of the year, we are only 165 closed sales behind at this point. That is a victory in itself being able to recover from our stalled sales period.
Purchase Pricing on The Rise, But Not Necessarily A Corresponding Rise In Home Values
I always like to point out that a rise in purchase price doesn’t necessarily mean that home values have risen. I won’t have a good grasp of home appreciation values for 2019 until around the end of January 2020 when I can look at the entire years data.
Lower mortgage interest rates combined with increased wages can cause an increase in purchase pricing by itself. Many National and Local homebuyers this past year have kept more of their take home pay, received higher wage increases and have benefitted from lower mortgage interest rates. In other words, homebuyers are able to afford to purchase higher priced homes in 2019.
This appears to be true across the entire homebuyer spectrum as many homebuyers made the leap from existing resale homes to a new lower entry point new construction home this year. This new market segment has filled a void in our local market and allowed more opportunities to move up buyers just under the new construction priced inventory.
Moving Forward—The Next Wave of Home Buyers For 2020
Nationally, the homeownership rate is inching higher from 63% to 65% of all Americans owning or purchasing their home. The Millennial (under-35) home buyers are also on the rise moving from 34% last year to 38% in 2019.
The majority of these buyers are first-time purchasers of homes and are not coming from apartment renting, but rather from parents’ homes. Not surprising is that the number one reason for living with parents is student loans, with the typical Millennial carrying $30,000 in Student Loan debt according to a survey in the NAR Profile of Home Buyers and Sellers.
The good news to be taken from this is that the Millennial buyers are beginning to purchase homes. The challenging reality is that with the student loan debt, they will be focusing on the lower end of the price range due to affordability.
They will also be looking for homes with very little needing to be done to them as they will not have the resources (or the time) to do much remodeling. What many of the older generation sees as a lack of motivation by these young buyers is in reality a necessity to work more than one job. One job to pay for housing, food and transportation, the other to pay down student loan debt.
Predictions For End Of the 2019 Des Moines Real Estate Market
- The number of home sales will be very close to 2018 ending just over 14,000 closed sales.
- Homes for sale inventory will dip slightly through December but will still end the year with more homes for sale than December of 2018.
- The median sale price will end the year very close to 2018 at $199,000.
- The balance of the market for existing homes will remain a Seller’s Market at under 4 Months of Inventory through the end of the year while new construction homes will be a Buyer’s Market pushing above 8 Months of Inventory.
- The national recession talks will be just that— talks for 2020. Expect the recession to hit early 2021—“UNLESS” there is some major national situation or event that occurs.
- Home sales in 2020 will exceed 2019 and set the bar for the highest number of homes sold that year due to the influx of the under-35 age home buyers.
- Home inventory levels will remain in short supply in 2020, in particular in the under $250,000 price range.
- The median sale price will level off in 2020 ahead of the pending recession even though mortgage interest rates will remain low and workers’ salaries increase.
- Homes that sell the fastest in 2020 are ones that are in move-in condition and that are priced properly.