Home sellers have been getting a lot of love from the housing market these days, thanks to trends that include home price appreciation and low inventory. But is it likely that we will see a buyerâ€™s market anytime soon, or should we get comfortable in the current climate that benefits sellers?
Whenever the housing supply outpaces the demand for that housing, it means weâ€™re experiencing a buyerâ€™s market. Price trends can dictate what type of market weâ€™re in, as well.
â€śAny time youâ€™re having price declines, thatâ€™s a buyerâ€™s market, because the buyer has more negotiating power,â€ť explained Tendayi Kapfidze, chief economist at LendingTree, MagnifyMoneyâ€™s parent company, â€śand any time you have rising prices, thatâ€™s a sellerâ€™s market.â€ť
Both mortgage interest rates and home prices have been trending upward for a while now. Interest rates averaged just below 4% at the top of 2018 and are now moving closer to 5%. As of Dec. 20, the 30-year fixed-rate conventional mortgage averaged 4.62%. A year ago, the average rate was 3.93%, according to Freddie Macâ€™s weekly Primary Mortgage Market Survey.
Another measure â€” the Mortgage Bankers Associationâ€™s weekly Mortgage Applications Survey â€” reported that the average 30-year fixed conventional loan was 4.94% for the week ending Dec. 14.
Nationally, home prices rose 5.5% year-over-year, based on data from the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index.
The recent home price and interest rate trends have led to a slowdown in sales and construction year-over-year, Kapfidze said.
â€śThereâ€™s some diminishing demand because of accumulated price increases since about 2012 and because, more recently, the increase in interest rates over â€” call it â€” the last year and a half,â€ť he said.
The Federal Reserveâ€™s monetary policy decisions can have some impacts on the housing market as well â€” namely, indirectly affecting mortgage rates. For example, when the Fed buys and sells mortgage-backed securities and Treasury bills, those transactions influence how mortgage lenders set their mortgage rates.
Home sellers have largely reaped the benefits of todayâ€™s housing market conditions, especially the increases in home values. Higher prices mean more of a profit when itâ€™s time to sell.
â€śAppreciation is always beneficial to sellers and detrimental to buyers because itâ€™s making the houses more expensive,â€ť Kapfidze said.
The rise in home prices has impacted housing affordability for many buyers. In fact, the principal and interest portion of the mortgage payment on a median-priced home has jumped more than 16% over the past year, according to real estate data firm CoreLogic.
Forecasts have been pointing to more of the same trends in 2019, but at a slower pace. Freddie Mac expects home prices to grow by 4.3% and rates for 30-year fixed-rate mortgages to rise to an average of 5.1%.
The sellerâ€™s market is anticipated to continue for while, and some economists have predicted that a buyerâ€™s market wonâ€™t return until 2020. As to seeing the price drops that are typically associated with a buyerâ€™s market, Kapfidze doesnâ€™t believe weâ€™re headed in that direction yet.
â€śI think weâ€™re still going to have price appreciation,â€ť he said. â€śItâ€™s going to be modest, but prices are still going to be going up, which means things are going to be getting more expensive for buyers.â€ť
If the conversation is about who has more negotiating power, that could possibly be a better indicator of a buyerâ€™s versus sellerâ€™s market.
â€śI suppose if thereâ€™s a lot of supply and you have a choice, then maybe thatâ€™s more of a buyerâ€™s market,â€ť Kapfidze added, â€śand if thereâ€™s not a lot of supply and houses are getting multiple bids, maybe thatâ€™s a sellerâ€™s market.â€ť
Next year isnâ€™t different from any other year for homebuyers, Kapfidze said.
Consumers who are considering a home purchase in 2019 should focus less on the type of market weâ€™re in and more on making a lifestyle decision about whether theyâ€™re ready for homeownership, he added.
â€śOnce you make a lifestyle decision, then figure out your budget,â€ť Kapfidze said.
Then itâ€™s time to shop around for a mortgage. Itâ€™s also helpful to pay attention to mortgage rate trends and the general state of the economy.
â€śThereâ€™s some risk involved in purchasing a house, so you want to make sure that when you buy this asset â€¦ that you are in a position to manage your financial obligation, which is the mortgage payment,â€ť Kapfidze continued, â€śand not be in a position where you create a threat to your financial well-being by overextending yourself when you purchase the house.â€ť
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