A robust economy with positive wage growth and low unemployment should, in theory, correlate to a strong housing market in 2019. But the headwinds of the limited number of homes on the market and affordability issues are likely to test the strength of the real estate industry in the coming year.

The array of positive economic news has kept consumer confidence high, even when the stock market has been volatile, according to Larry “Boomer” Foster, president of Long & Foster Real Estate.

“All that confidence should add up to a relatively strong housing market,” Foster said. “It would be even stronger if there were more homes on the market, which has been a particular challenge around Washington, D.C., and many parts of the Mid-Atlantic.”

Still both Foster and Gary Scott, also president of Long & Foster Real Estate, anticipate a solid housing market over the coming year.

“We’re bullish on 2019,” said Scott. “We’re in our third year of a cycle of slowly rising interest rates, limited inventory and rising construction costs, so we’ve adjusted to those conditions and our market is normalizing.”

Some of the trends Foster and Scott anticipate for 2019 include:

1. Strong economic news will keep consumer confidence high. Economic indicators are anticipated to continue in a positive direction in 2019, with strong GDP growth, solid job creation and wage growth of 3 percent or higher. Those indicators add up to consumers feeling confident to buy their first home, move-up to a new home or invest in real estate, said Scott.
2. Inventory will increase a little, but still not enough to meet demand. Inventory will expand this year, but primarily in the upper brackets, according to Foster. Demand is strong for entry-level housing, but there won’t be much more housing available in that market segment.
3. Builders will face challenges that will constrain supply. The high cost of land and labor as well as tariffs puts pressure on builders, who can’t build fast enough to meet demand, said Foster. “Their margins are squeezed, so most builders aren’t constructing homes for first-time buyers or even for first-time move-up buyers,” he said.
4. Mortgage rates are likely to rise. The Mortgage Bankers Association predicts that mortgage rates will reach 5.1 percent by the end of 2019. “While mortgage rates are going up, it’s important to look at them over the decades,” said Scott. “Five percent is still remarkably low historically. In addition, interest rate creep always stimulates the housing market.”
5. Home values will rise, but at a slower pace. The National Association of Realtors predicts that prices will rise about 3 percent in 2019 over 2018, a solid increase but not at the rampant pace of previous years. “For buyers, slower price appreciation is a good thing,” said Foster. “Look at this year alone, when prices have gone up 6 percent nationwide, which is twice the pace of wage growth.”
6. The seller’s market will soften slightly. “The pace of sales has slowed compared to last fall,” said Foster. “For one thing, there’s a lack of product to sell. We also see that buyers are more particular than in the past. If the quality of a home isn’t up to their standards, they’re not interested in it.”
7. Demographics favor a strong housing market. “We have a generation of over 70 million millennials who want to buy homes and who are getting older and ready to settle into their careers and household formation,” said Scott. “We also have a generation of aging baby boomers who will need to downsize, and that will also stimulate the market.”
8. Investors will benefit from continued healthy returns. “Tremendous wealth has been generated by the stock market over the last 36 months, and I anticipate that investors will convert some of that wealth into rental property to diversify their portfolios,” says Scott. “We continue to see good returns on rental property because demand is high, cash flow is good and mortgage rates remain attractive.”

What these trends mean for you

If you’re planning on buying or selling a home in 2019, it’s important to put these trends into perspective and realize that your local market may not match these overriding predictions, Scott and Foster said.

“Every buyer and seller should maintain their focus on their individual goals and motivations,” said Scott. Likewise, hiring a real estate agent with a hyperlocal focus is essential for both buyers and sellers, added Foster.

Whether you’re looking to buy your first home, move up or downsize, the agents at Long & Foster Real Estate can help you decide where and when to buy or sell a home. In addition, Long & Foster’s partners at Prosperity Home Mortgage, LLC, can help you finance your move, and the market data available from Long & Foster’s Market Minute, Market Conditions and LuxInsight reports can provide the information you need to make a wise investment in your new home.