In the spring and summer seasons of the last few years, the focus was on the extreme seller’s market, rapid price gains and fears of a growing bubble that was about to burst. Recent commentary by NAR® Chief Economist Lawrence Yun may finally be putting the latter of those fears to rest as we find ourselves in a more ‘normal’ market. If you read our Santa Clara County Real Estate Report last week, you know that we are still in a seller’s market according to data indicated by the sales-to-list price ratio.
In addition, information just released from the National Association of Realtors supports that home prices are still growing – but simply at a slower and healthier pace than we have seen in years prior. The result is a market that has not only benefits for both buyers and sellers today, but for the constitution of housing as a whole. Here is what you need to know about the real estate market today:
#1: Homes Are Not Losing Value. As Mortgage News Daily reports, home prices have increased in 163 out of the 178 major metro markets (unchanged from 2018). However, inventory increases along with home price increases are contributing to a slower and healthier pace among price gains.
#2: Inventory Is Improving, But It's Still Not Enough. Nationally, Q4 of 2018 demonstrated a rise in inventory of 6.2%, a nationwide 4-month supply compared to the previous year’s supply of 3.5 months. Locally, Santa Clara County inventory levels are hovering around 50% lower than our regional average since 2000. Yun reiterates that here on the West Coast, we have the greatest need for more homes built.
#3: San Jose Is Still The Priciest Market. With Zillow predicting that San Jose is likely to be one of the hottest 2019 markets again, it also continues to be the most expensive housing market in the nation with a median home price of $1,250,000.
#4: Median Family Income Is Rising. While higher mortgage rates are hampering affordability for buyers on the verge of qualifying, national median family income rose to $77,392 as of the last quarter of 2018.
#5: Housing Starts Are Below Normal. While we mentioned above that there are not enough existing homes on the market to meet demand, there is not enough new construction either. With just 9.6 million new homes added in the past 10 years, we would have needed 15-16 million to align with population and job growth.
So let’s just say this: the real estate market is not exactly in sprint mode anymore, but more of a marathon pace.
- Slow and steady price gains are providing opportunity for sellers to cash out on equity, while buyers are in a better position than before due to increased inventory and less competition.
- Home values are unlikely to stop rising, as inventory still appears far from meeting demand based on both existing levels and new housing starts. This makes home ownership a continued wise investment, but not an unattainable one (which it would have been if price gains continued at their previous pace!).
- While rates are impacting how far a buyer’s cash can go, some of that loss is being tempered with rising incomes.
All in all, this is a period of market normalization; it may be slower than what we have seen – but that means you have time to stop and smell the roses instead of just avoiding the weeds, right? If you have any questions at all about what healthier price gains and increasing inventory mean for you, please do not hesitate to reach out!
All our best,
Mark & Jason
*Resource Used: NAR: Home Price Gains at a "Healthier" Pace