Panic about the 2019 Real Estate Market is Overblown

I keep seeing headlines lingering bearish on US real estate in 2019. When you’re 9 years into a bull market, I suppose those fears are understandable. We had a bit of a pullback last fall as interest rates spiked. As usual, the headlines lag the actual market data. So let's see where we are as of April 23, 2019.

The question for 2019 was, will the market reset for spring or will that cooling trend continue. We can definitively say, the 2019 market has reset and will be yet another up year for home prices. Just fractionally softer than the last few years, but 2019 keeps us solidly growing.

This article is looking at the Altos Research national real estate market data but as always you can use our real estate market reports to search your local market trends.

It helps to put our inventory supply situation in perspective. Available inventory in the Altos 20 (the same 20 major cities that make up the Case Shiller index), is up about 15% from last year. Is that because the market is tanking? Not really. Here’s 10 years of inventory trends, starting in the roiling aftermath of the burst bubble. Despite the recent uptick, we’re still at critically low inventory levels. The supply side of our Supply/Demand curve is very bullish for home prices.

What about the demand side? I like to use two proxies for real estate demand: Days on Market and Price Reductions. With Price Reductions in particular, you can see how the market pulled back last fall as interest rates spiked. We hit our highest rate of price reductions as sellers worried about demand. Rates fell back down in Q1, and market demand resumed. A little weaker than recent years, but still in the healthy/normal zone for this time of year. 

Days on market ticked up from last year too. But in perspective, homes are moving super fast. Part of this improvement is due to new technology in the mortgage market and new players like the iBuyers scooping up market share in Atlanta, Phoenix, Dallas (all components of the Altos 20).

The wild card for the rest of 2019 is interest rates. We saw the price reductions very sensitive to rate spikes last fall. We got lucky when rates fell again this spring.

Home prices have been outpacing income growth on average, and at some point that has to reverse, probably painfully. Watch rates as our trigger. In the longer term, I speculate that the iBuyer market share and influence continues to grow, which we’ll mostly see in lower Days on Market. But when the market turns and all these guys pull out at the same time, we’re going to face new dynamics. But that risk seems to be several years away.