A Look at the real estate market in 2018 and where we are going in 2019
What you are getting into: 3-5 minute read.
Looking Back
A new year and a new market have emerged. Over the past few years the real estate market, along with most of the economy at large, experienced an absolute surge in growth. Nationwide new markets were developed, and ferocious demand reigned. From California to New York and everything in-between, enthusiasm at low interest rates and a strong economy caused a buying frenzy not seen since before the 2008 economic recession. This demand pushed real estate prices ever higher. Sellers were thrilled by the prospect of selling their homes at a huge profit, and the market operated at breakneck pace. Multiple offer scenarios became common – even expected.
Nowhere was aggressive real estate trend more evident than in Traverse City and the surrounding 5-county region. As of 2018 the median house sale price increased by more than 27% since the previous high in 2007. This lends credibility to the old adage that despite economic booms and busts, on a long enough time line the housing market always goes up.
5 Years of Bliss
The majority of the growth came in the past 5 years or so. Between 2012 and 2017 Grand Traverse County experienced a whopping 41% increase value for residential homes. Due in large part to the price of raw materials and a labor shortage, vacant land values did not see much of an increase. For many buyers the cost and hassle of building outweighed the benefits. This pushed even more potential buyers into the residential home market, further increasing demand.
While the market in 2018 did see some flattening compared to previous years, the upward trend continued. Single family homes saw a 4% increase in average sales price, which is still strong growth, although not nearly at the breakneck speeds that were being seen during 2016 and 2017, which saw 7% and 8% increases in average sales price each year.
While the flattening of the real estate market in Traverse City and surrounding areas is multifactorial, there appear to be 4 principle influences at play.
1st INVENTORY SHORTAGES.
While demand was still very high, inventory shortages caused many potential sellers to second guess selling because of the difficulty in finding new homes. Many buyers became frustrated at finding themselves unable to compete in multiple-bid situations. Others are discouraged by the lack of inventory and have dropped out of the home buying process.
The average time people have traditionally spent in a home used to be approximately 7 years. However, after the recent economic crash of 08’ people have stayed in their homes an average of 3 years longer. This trend has continued into the present day. People are more reluctant to sell, likely due to the recent economic hardships, despite the current booming economy.
2ND CHANGING INTEREST RATES
Increased interest rates gave pause to many potential buyers. While the current interest rate is comparatively low to the historic average, the increase from approximately 3% to 4.5%, halted many a home buyer search. It also affected sellers. Many potential sellers decided not to sell because they wanted to keep their current low interest rate. As opposed to having to get a new mortgage at a potentially higher interest rate.
3RD GENERAL ECONOMIC FLATTENING
The real estate market and the economy at large are closely tied. Generally, when the economy is surging upward the real estate market does the same. Conversely, as the economy starts to flatten the real estate market follow suit. The entire U.S. economy during 2018 experienced strong growth, but also did experience some flattening during 2018. This likely had some impact on the housing market in general.
4TH MORE PEOPLE ARE DELAYING HOME BUYING.
The millennial generation now constitutes the largest buying segment of the population. However, unlike previous generations, millennials are delaying many of the traditional paths, such as marriage, having children, and home ownership. Many millennial buyers are finding that they have been priced out of desirable neighborhoods and have suspended their home buying in favor of renting until their financial situation becomes more tenable.
MOVING FORWARD
Entering 2019, the near future looks solid. Most real estate economists expect moderate growth in the housing sector through 2019. Interest rates appear to be holding below 5% and demand is still strong despite low inventory. Baring any major economic forces, the real estate market appears to be strong.