Most experts agree that the 2019 US housing market will be a seller’s market. However, a buyer’s market is not too far off. And we won’t be seeing the average seller’s market in 2019 either. So investment property buyers are not likely to be sitting on the sidelines this year.
US Housing Market Forecast- Surveying the Experts
Zillow’s Q3 2018 Home Price Expectations Survey asked 100 experts, among them economists, investment strategists, and housing market analysts, about their US housing market predictions for the next 5 years. The hot question was:
“When do you expect US housing market conditions to shift decidedly in favor of home buyers?”
An overwhelming 76% said that real estate investors and homebuyers shouldn’t expect a buyer’s market in 2019. Next year will continue on the path of 2018 and remain a seller’s market.
The major reason for the landslide in opinion boils down to two elements: house price appreciation and the housing inventory. In the past year, real estate prices have appreciated by 7.6%, with market predictions pointing at a 6.4% rise for this time next year. Home price appreciation has hit all-time highs with long stretches of high acceleration. Housing inventory, on the other hand, has been falling and the shortage has become an issue across many major markets. This combination of high investment property prices and limited housing supply spells out one thing for real estate investors: a seller’s market.
When Will It Be a Buyer’s Market Again?
According to the same survey, only 13% of real estate experts believe the US housing market 2019 will be a buyer’s market. 43% say that 2020 will bring with it a buyer’s market in real estate and 18% say we’ll have to wait for 2021.
Even though opinions may be split on this real estate market trend, it doesn’t seem that property buyers will have to wait too long for the negotiating power to be in their hands. In fact, while 2019 may not be labeled as a buyer’s market, there are interesting trends that are likely to favor real estate investors looking to buy investment property and even first-time homebuyers.
Let’s take a closer look at why it won’t be all black and white for 2019’s seller’s market.
Emerging Real Estate Market Trends That Could Favor Buyers
Q3 2018 of the US real estate market brought with it a few different trends. If these trends continue into the next few months, 2019 may be more favorable for buying investment property than we think.
Real Estate Price Appreciation
All we have been hearing for the past few years is how fast and how much prices are appreciating across most US real estate markets. However, the last quarter showed a slightly different trend. According to this report from ATTOM Data Solutions, the US median home price increased by 4.8% in Q3 2018. Even though there was an increase, it was the slowest rate of property price appreciation since Q2 2016. 74 of the 150 metropolitan statistical areas included in the report (49%) all exhibited this trend in decelerating appreciation for single family homes and condos. Some of these major markets include:
Chicago, IL
Houston, TX
To start looking for and analyzing the best investment properties in any one of these cities, click here.
This real estate market trend (if it continues) can offer some breathing room for anyone looking to buy investment property in 2019. This is simply because prices won’t climb much higher than where they stand now. It allows for investors and property buyers to “catch up” in a way, as long as the US economy remains on a healthy path. In combination with some of the following trends, we’ll see sellers easing up as some buyers drop out of the market. Hopefully, it’s an indication of things cooling down a bit and a kind of correction in the market, allowing for real estate investors and homebuyers to make some moves.
What this doesn’t mean, however, is that real estate property prices will be affordable in 2019. The same report from ATTOM Data Solutions shows that house prices have reached a 10-year low in terms of affordability in the US real estate market. Experts say the affordability issue is one of the leading causes of the slowdown in market price growth. And while some markets are following this trend, others are still growing at fast rates such as:
San Jose, CA
Boise, ID
Grand Rapids, MI
Lakeland, FL
Dayton, OH
San Francisco, CA
Of course, some of these property markets have room for growth as their median property prices are still in the affordable price range and haven’t hit historic highs. Take Boise, Idaho for example. Real estate development and building happen there at a healthy pace. This allows for resale price appreciation while keeping the affordable environment of the market alive and well.
Others, however, struggle with low inventory and as demand increases, prices are shooting up. This is the case in many West Coast cities of the US.
While it’s true that a slowdown in property price appreciation isn’t enough to say we have a buyer’s market on our hands, it is something to watch for in 2019 as the power of sellers will begin to shift back to buyers.
Related: How to Calculate Real Estate Appreciation
Investment Property Mortgage Rates
Experts say another reason for the slowdown in price appreciation is the rise in property mortgage rates that have happened over the year. According to predictions from The Mortgage Reports, 2019 will see an increase still, possibly hitting over 5%. Even so, as of the end of 2018, mortgage rates are historically low even if they hinder affordability and keep a buyer’s market at bay for now.
When it comes to this increase, property buyers have to keep two things in mind:
- Now may be the best time to buy a house for real estate investing or residence before mortgage rates become even higher
- Real estate prices may eventually fall somewhat due to these rising rates
If you can afford the mortgage payments and have serious plans to buy an investment property in 2019, do it now. The beginning of 2019 is forecast to see higher rates, meaning you’ll be paying more for the same property value.
But as 2019 moves on, it’s important to keep watch of this real estate market trend. Higher investment property mortgage rates could mean more first-time homebuyers are priced out of certain markets. This means those selling investment property will find less competition over their properties. Typically, what follows is price cuts and some negotiating power for buyers- something resembling a buyer’s market.
Learn More: Invest in Real Estate Now as Investment Property Mortgage Rates Are Rising
Housing Inventory
As mentioned, the US housing market in 2019 will still be facing an inventory shortage characteristic of a seller’s market. However, Q3 showed slight shifts in this trend. The rate of inventory decline slowed down across major markets. Realtor.com reports that in October, there was a 2% year-over-year increase in active listings. This is coming after 4 years of rapid decline. 26 of the 45 largest markets in the US witnessed this climb, with the largest inventory gains in the following real estate markets:
San Jose, CA
San Francisco, CA
Not only was there an increase in October, but the new listings also had cheaper real estate to offer. The new listings were 8% cheaper than existing homes for sale. If 2019 brings with it even more cheaper homes for sale, real estate investors may find it easier to find more affordable investment properties in the market.
Even with the combined active housing inventory increase of 6% over this time last year in these larger markets, the shortage is still rampant across the nation. If it continues as it has in October of 2018, then maybe buyers will have more choice and sellers will be forced into negotiations in 2019.
Property Sales
RE-MAX, a US real estate company, reported that in September of 2018, home sales dropped. The year-over-year drop of 11.6% was the largest decline in home sales since May 2011. While the largest drop was in Q3 2018, home sales have actually been dropping for many months across US markets. Typically, in a seller’s market where demand is so high, sales increase as days on market decrease. However, the report shows that the opposite has been happening nationally.
While property sellers may not be loving this trend as homes for sale remain on the market for longer, it will be a good thing for property buyers if it continues. As long as the US economy remains in an upward swing, sellers will be pressured to lower prices. This will give real estate investors and first-time homebuyers more options in the market in 2019.
Price Cuts on Real Estate Listings
As we have seen, a lot of the previous trends can lead to price cuts which are great for a real estate seller’s market where property is being overpriced. But Q2 2018 actually already saw price cuts across the nation. Zillow reported that 14% of real estate listings across the US housing market had a price cut in June. From January to June of 2018, there was an increase of 1.2% in the number of listings with a price cut. The majority of these listings are in the higher price range, with those on the lower end not budging much.
Experts predict that if the current trends we have seen in Q3 continue, then price cuts are likely to keep happening in major markets. Price cuts typically don’t occur in a seller’s market and are more likely to happen in a buyer’s market. So while the 2019 US housing market is technically a seller’s market, it’s possible price cuts will begin to help buyers enter the market again next year.
Buyer’s Market or Seller’s Market?
We can’t deny that most things point to a seller’s market for 2019. But we also can’t deny that things are looking up for property buyers. In fact, it seems that the 2018/2019 winter real estate market is already seeing a few major markets favoring buyers more than sellers.
Top Buyer’s Markets in the US for 2018/2019 Winter Real Estate Market
This study by Zillow found that based on price cuts, appreciation in rental rates, and relative affordability, 10 markets will be the best places for property buyers in the coming months. These markets are:
Orlando, FL
Boston, MA
Seattle, WA
Las Vegas, NV
Charlotte, NC
Columbus, OH
Portland, OR
Sacramento, CA
Minneapolis, MN
Dallas, TX
If you want to find investment property with the highest ROI in any one of these markets, try Mashvisor’s Property Finder.
Using Mashvisor’s investment property calculator, we analyzed the top 10 buyer’s markets and found these markets had the highest return on investment (ROI):
Orlando, FL
Median Property Price: $323,826
Traditional Rental Income: $1,588
Traditional Cash on Cash Return: 1.73%
Airbnb Rental Income: $2,256
Airbnb Cash on Cash Return: 2.96%
Airbnb Occupancy Rate: 59.46%
Related: What Airbnb Occupancy Rate Can You Expect in 2019?
Las Vegas, NV
Median Property Price: $373,022
Traditional Rental Income: $1,317
Traditional Cash on Cash Return: 1.44%
Airbnb Rental Income: $2,905
Airbnb Cash on Cash Return: 4.84%
Airbnb Occupancy Rate: 58.83%
Charlotte, NC
Median Property Price: $387,111
Traditional Rental Income: $1,469
Traditional Cash on Cash Return: 1.14%
Airbnb Rental Income: $2,450
Airbnb Cash on Cash Return: 2.73%
Airbnb Occupancy Rate: 54.66%
Columbus, OH
Median Property Price: $250,164
Traditional Rental Income: $1,283
Traditional Cash on Cash Return: 1.59%
Airbnb Rental Income: $2,336
Airbnb Cash on Cash Return: 4.04%
Airbnb Occupancy Rate: 53.41%
Sacramento, CA
Median Property Price: $364,014
Traditional Rental Income: $1,439
Traditional Cash on Cash Return: 1.12%
Airbnb Rental Income: $2,754
Airbnb Cash on Cash Return: 2.83%
Airbnb Occupancy Rate: 63.69%
Minneapolis, MN
Median Property Price: $353,530
Traditional Rental Income: $1,757
Traditional Cash on Cash Return: 1.48%
Airbnb Rental Income: $2,738
Airbnb Cash on Cash Return: 3.48%
Airbnb Occupancy Rate: 61.18%
There are two key things to note when looking at Mashvisor’s data for these top markets for buyers:
- Be sure to check Airbnb regulations by city. The high returns here are based on current Airbnb listings but strict regulations may be in place.
- The ROI for each city is simply the average. With the power in the hands of the buyer and the power of Mashvisor’s Property Finder, you can find investment properties with a much higher cash on cash return.
Don’t wait for the winter to pass! Start looking for investment properties now in these markets with Mashvisor. Be sure you’ll be making money in 2019, even if it’s a seller’s market!
Final Words
Even though the US housing market forecast for 2019 says you might find yourself in a seller’s market, keep watch of these major trends. You may soon find that the winds are shifting in favor of buyers. If you don’t want to wait for mortgage rates or property prices to get any higher, then start looking for investment property in the top markets for buyers listed above.
