Stein’s Law, an economic theory articulated by presidential adviser Herb Stein in 1976, states that: “If something cannot go on forever, it will stop.”
As a homeowner headed into 2019, you may have noticed that real estate trends have been nothing but good for awhile now. In fact, we’re in the midst of the third-largest housing boom since 1913, with U.S. property values rising 53% on average since the start of the expansion in February 2012. That means a typical house worth $200,000 only 6 years ago is now worth $300,000. Cha-ching!
But back to Stein.
“[During the bubble], people just weren’t selling their houses because they were afraid, they were underwater, or they just didn’t want to make that financial commitment,” says Rachel Frentsos, a top agent in Annapolis, Maryland who has sold 83% more properties than the average agent in her area.
“So, do it now before it hits, again. Then, at least you’ve made your move, you have your money, and you don’t have to worry about it.”
That’s not to spook you (this is not 2008, people!), but to shake you by the shoulders and say: carpe diem, homeowner! Top real estate agents across the country and the latest trend reports point to clear guidance: if you own a house and have entertained the idea of selling it recently— pull the trigger in 2019.
In case you needed another reason to put out the for-sale sign, here are 10 of them. All based on cold, hard data and the professional insights of housing experts.
1. Tick-tock: Existing-home sales already hit their peak in 2017
The National Association of Realtors’ (NAR) existing-home sales report measures completed transactions of existing (rather than newly built) single-family homes, condos, co-ops, and townhomes every month. The report pulls 40% of the data from multiple listing services across the country, offering inventory and price data while providing insight into regional real estate trends and homebuyer behavior.
In November 2017, existing-home sales reached their highest level in 11 years (since December 2006), leaping 5.6% month-over-month to a rate of 5.81 million units. Compare that to a year later: existing-home sales, which have generally been on the decline in the latter half of 2018, were reported at a rate of 5.32 million in November 2018. That marks a 7% annual drop, despite a modest 1.9% rise over October’s data.
What’s that mean for your 2019 home sale?
Well, think of the sale pace of current homes as a market “hotness” factor. Existing-home sale metrics are what’s called a lagging economic indicator that reacts to a trend or pattern already taking shape. In this case, it’s a general real estate cooldown driven by softening buyer demand, rising interest rates, and increased inventory.
In 2019, “[homesellers] still have a tremendous amount of leverage in the process,” says Lindsey Gudger, a top real estate agent in Seattle, Washington, who has sold 71% more properties than his peers. “I could not tell you what that’s gonna look like in 2020. Will you leave 10% on the table by selling in 2019 instead of 2020? Maybe. But, you’re probably going to enjoy the benefits of a shifting market wherever you buy as well.”
2. Mortgage rates are going up, up, and away, making it more expensive to buy a house
The Federal Reserve implemented four interest rate hikes in 2018, the most recent of which was on December 19. In response to a rise in inflation rates and labor market expectations, the Committee voted to raise the federal funds rate to 2.25%-2.5%, the highest it’s been since 2008.
Long-term rates like mortgages aren’t directly controlled by Fed rate hikes, but rising interest rates do put pressure on mortgages, eventually softening demand for housing. A 1% increase on the 30-year fixed loan reduces the pool of eligible buyers by up to 20% in major cities.
If you think mortgage rates are bad now in comparison to a few years ago (in reality they’re still historically low), well, they’re only going up for the foreseeable future.
Analysts predict two more rate hikes next year while rates are projected to hit 5.5% by the end of 2019. Talk of rate increases can trigger homebuyers to lock down a lower rate before it gets worse or push them out of the market entirely depending on the circumstance.
3. Homebuyers are signing fewer contracts, so 2019 is the time to secure an offer
According to NAR’s pending home sales index, which measures signed real estate contracts for single-family homes and condos, real estate contract activity dropped 2.6% in October, highlighting the 6.7% decrease in pending home sales year-to-year.
A major contributor to this decrease is the rise in mortgage rates and drop in eligible homebuyers. Without the buying power that comes with lower interest rates, people are signing fewer contracts to buy a house.
As with the drop in existing-home sales, slowing pending home sales point to more homes on the market and more competition in the future. As mortgage rates continue to climb, buyers have fewer options to choose within their budget.
Before you’ve got competition that leaves your house on the market for longer than it should, take the opportunity to sell your house in 2019.
4. Coming soon to a market near you: New listings!
A substantial lack of inventory has been one of the primary drivers of the post-crisis real estate boom. Fewer homes for sale translates to rising property values and fierce competition among buyers.
But a marked shift this year indicates the inventory drought is coming to a close. In September, the total number of real estate listings rose 6% compared to 2017 in the largest real estate markets in the country.
Top cities that had a spike in listings were those that simply experienced too much price growth, too fast—think San Jose, San Francisco, Seattle, and San Diego. In fact, San Jose saw a 113% jump in homes for sale in September 2018 when compared to 2017.
With every passing month, your house faces more competition against other homes vying for buyers’ attention on the market.
5. It’s up, it’s down, it’s… what? A shaky stock market creates doubt and uncertainty
2018 has been a tumultuous year for the stock market, with the Dow and S&P 500 trudging through their “worst December performance in a decade.” On December 17, SP fell almost 2.5%, dropping below February’s fall, while the Dow lost 507.53 points.
But, through the lens of Stein’s Law, we shouldn’t be so surprised by this volatility and decline. After all, the stock market hit a record bull stretch of 3,453 days (9 and a half years!) on August 2018.
Forecasts for the 2019 stock market are conflicted. Some predict a positive outlook and others advise investors to brace for more crashes. But, most strategists agree on an impending recession in 2020.
You can visualize the real estate and stock market relationship as a psychological call and response. When stocks tumble and people see red in their portfolios, they don’t feel as rich as they were. And, with rising mortgage rates, people won’t commit to huge transactions, like buying a home. Consequently, sellers have to lower their prices or risk sitting on the market.
6. The days of soaring home price gains are numbered
The SP CoreLogic Case-Shiller Home Price Indices report that after many years of fast home value appreciation, price growth is starting to level out. In September, price growth slowed for the second month in a row from 5.5%, down from 5.7% in August. In most markets experts predict price appreciation to cool down to 2%-3% annual growth.
Even areas that are still appreciating at double-digits (like Las Vegas, Nevada, where property values have gained more than 20% since 2017) are starting to slow. In Seattle, says Gudger, “you’re talking about a near 15% appreciation, 3 years running, at 30% higher than our peaks in 2007. That kind of price growth simply isn’t sustainable, right?”
This is a natural slow down after years of intense growth. So, as prices plateau and inventory increases, avoid the decline and sell your house when your home’s value is still sky high.
7. Gradual increase in days on market signals housing slowdown
You’ll often hear real estate agents throw around the term “days on market” (DOM) when discussing the state of the housing market. The real estate industry uses DOM as a time marker to see how long a house has been on, you guessed it, the market. If a house has a longer-than-average DOM, homebuyers and housing experts alike start to question what’s wrong.
An increase in DOM also signals a decline in the number of people entering the market to buy these homes.
In 2018, there’s been a general increase in the number of days that homes have been on the market. In November, homes stayed on the market for 42 days, up from 36 days in October 2018 and 40 days in November 2017.
HomeLight’s own data confirms this gradual increase for some areas.
The number of days on market has started to climb even in cities with strong housing markets. Seattle’s average DOM jumped from 45 days in April 2018 to 65 days in November 2018. Similarly, San Francisco’s 53 days in April spiked to 70 in November.
With rising mortgage rates and a shaky stock market, it’s not hard to believe that there are fewer homebuyers entering the market. As we enter 2019, buyers can pick and choose which homes to look at with more properties coming on the market and staying there.
8. All-time low unemployment, yet limited job growth
The November 2018 Employment Situation Summary from the Bureau of Labor Statistics reported that employers added 155,000 jobs to the market, which is down from October’s 250,000. Unemployment stayed the same at 3.7%, which is still the lowest in 50 years.
To keep up with the number of people entering the workforce, companies need to create more than 120,000 jobs per month. But, the recent decline in job growth illustrates that the labor market is almost at full employment. Leisure, hospitality, and retail jobs have all declined by 20,000 jobs in November.
Still, unemployment is at rock bottom, meaning that people still have buying power and consumer confidence. This will most likely continue into the beginning of 2019, making it a great time to sell your house before unemployment creeps back up.
9. Analysts predict a recession on the horizon
Economic experts are at crossroads with their predictions for a recession in 2020. Some say that there’s a 35% probability that a recession will take place in 2020, others are betting 50%. Many, however, are more negative in their predictions, with JP Morgan predicting that there’s a 70% chance of a downturn in 2020.
Almost all experts are pointing fingers at the U.S.-China trade war, rising interest rates, high corporate debt levels, rising inflation, and an overvalued, fluctuating stock market. It seems that it’s not a matter of if a recession will happen, but when.
Time your home sale for 2019 to avoid the inevitable economic correction—otherwise, there’s a chance that when the downturn hits, the value of your home will drop, buyers will be scarce, and you’ll end up selling your home at a depreciated value or a loss.
“I always think it’s good to sell when you know what you’re dealing with and you know the numbers versus waiting a year or two in hopes of it getting better,” says Frentsos. “As we know, even with the stock market, you can never look ahead.”
10. Newer is always better: House construction picking up pace
The latest Monthly New Residential Construction release from the Census Bureau and U.S. Department of Housing reported a 5% increase in building permits in November. Both October and November reports show that although month-over-month new construction is fluctuating, construction continues to rise year-over-year (November 2018 is 0.4% above 2017).
More permits mean more new construction, and new construction means more competition. Before the rise this year, new construction hasn’t kept up with demand, which is what contributed to the strong seller’s market.
“When you’re selling your home, you really have to be aware of the new construction in the area. It’s just human behavior: people just love ‘new,’” says Frentsos. “You do need to make sure that you’re leveraging yourself against the new construction.”
If you have a 20-year-old house, you have to price your home less than the new construction in your area. Construction companies often take out loans to finish projects. So, with the rising rates due to increase in 2019, developers are maxing out on their projects, which can explain the gradual rise in inventory and new construction.
Before new homes come into your neighborhood, put your house on the market before the shiny new house down the block stands to overshadow your 1970s charmer.
The verdict? Put your house on the market in 2019, but only if the price is right
2019 will remain a seller’s market, but judging by the housing predictions for the coming year, it won’t last forever. If selling your home has been on your radar and it’s the right financial move, take advantage of the low interest rates and high property values now.
Top real estate agents recommend that the best way to get ahead of the game is to price your house aggressively and competitively as we shift into a more balanced market.
“Don’t start in the wrong place with price,” says Gudger. “My outcomes for people that are very aggressive upfront tend to be much better than those that set too high of a price and then sit on market for 40 days.”
Frentsos agrees and believes that pricing will be a major factor for selling in 2019.
“People are not willing to overpay anymore and buyers are just more savvy,” says Frentsos. “They’re very careful about overpaying, unlike the past with a lack of inventory and people were willing to overpay.
“That’s just not the case anymore.”