Anything but Boring | Guest Post
“It’s tough to make predictions, especially about the future.” - Yogi Berra
Lawrence Yun, Chief Economist and Senior Vice President of Research at the National Association of REALTORS®, stated at the end of 2018, “The housing market in 2019 after a period of uncertain direction and swings will turn out to be quite boring.” I admit I liked that quote and agreed with where we were headed. We had just escaped spiking interest rates and disappearing buyers to a warm welcome of rising inventory.
As it turns out, this year was anything but boring, especially on our economic front.
The recession watch drew headlines for most of the year as we watched the yield curve invert, manufacturing decline and spikes in jobless claims. China trade talks also dominated headlines moving the stock market and consumer confidence. Despite the political and economic unrest, consumers kept spending, wage growth hovered at three percent, job growth slowed but unemployment stayed at record lows.
Have you wondered why the threat of recession got pushed out even though manufacturing and shipments are in a recession and business spending is down? Remember, a recession is defined as two consecutive quarters of GDP decline. 70 percent of the GDP is consumer spending. Any possible recession will be determined if consumers continue to be confident in the market and unemployment remains low. Additionally, we have a partner in the fight, the Federal Reserve Board, as they continue to buy $100 million in short-term treasury bills a month, keeping the market artificially inflated.
Last month I talked specifically about the psyche of the seller: Where have they gone, why were they waiting and where did all the inventory go. The December real estate market trends show the trend is growing as inventory dropped even lower, down 27.92 percent month over month and 9.68 percent year over year. Active listings finished the year with only 5,037 homes for sale. Only four years, 2014 - 2017, in the last 20 had lower listings than 2019. New listings were up 3.98 percent from 2018, but so were sold homes which were up 3.43 percent. High demand dropped months of inventory at year-end to a measly 1.13.
Inventory is down across every price point, yet seller concessions were up in December. Wait, what?
44.6 percent of sellers in December reduced their asking price prior to receiving an offer, up from 40 percent. Listings which had a price reduction spent an average of 70 days on the market, up from 59. For those who didn’t reduce prices, their homes sold in an average of 15 days.
It’s still a seller’s market but buyers don’t care. Sellers want to keep getting the returns their neighbors got, and buyers are unwilling pay. Sellers and agents, price your homes based on today’s market, not yesterday’s windfall!
Homes over $1,000,000 have four months of inventory while homes between $200,000 and $499,000 are unable to keep up with less than 1 month of inventory. Nationwide, we are seeing strong demand at or below the median purchase price. Denver is no exception. Flattened appreciation and low-interest rates that defined 2019 gave home buyers some breathing room as affordability hit a 20-year high.
Mortgage purchase applications were up five percent year over year at the end of December as rates continued to hover about one point lower than this time last year. Rates landed the year at 3.72 percent (with a 0.7 discount). It seems that as the highest number of millennials turn 30, their older siblings are starting to have kids and move to the suburbs and mom and dad boomers who own 41 percent of the homes are trying to downsize.
Last time inventory was this low with strong demand, buyers were writing contracts inside listings and receiving 20 offers was normal. This time around, there might be multiple offers but buyers aren’t buying just anything. They want move-in ready, smaller homes with more amenities.
Before we go, let’s take a quick journey down memory lane. The average home price 10 years ago was $259,117, compared to $484,812 today. We ended 2019 up 2.85 percent and the decade up 87.8 percent. I read that the S&P gained 185% in the last 10 years. Did housing stack up? You bet!
Herein lays the wisdom of leverage. If I had put $100,000 in the stock market 10 years ago, today I could leave the market with $285,000. If I bought a $500,000 home with 20% down, I gained $439,000 in appreciation for the same $100,000 invested. Have you heard of CNN’s Fear-Greed Scale? The stock market is poised to retreat in 2020. If you’re thinking of keeping your money growing and resistant to economic risk, real estate is the way to go.
There is a lot of useful data in this month’s Market Trend Report, more than I can cover in this short video. It can be overwhelming and hard to determine what can be translated with your clients. If you want help unpacking this information to become the trusted real estate advisor for your clients, then join us at our monthly Agent Ignite class or DMAR's Warning: Graphic Images.
Your champion in Building Wealth through Real Estate,
Nicole Rueth The Rueth Team of Fairway Mortgage
The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of REALTORS®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
If you are interested in submitting a guest post, please contact Sarah at.