The last couple of years have been rough for home buyers — specifically on the West Coast, where an influx of well-heeled techies has upped competition for limited options. But the dynamic started to change in the latter half of 2018, giving buyers a little relief, and tech-powered real estate brokerage Redfin expects that trend to continue into the first half of next year.
Redfin today issued seven predictions for the U.S. housing market, and slowing price hikes means we’re likely to see the coolest housing market in years in 2019. The trend will be felt most on the West Coast in tech hubs like Seattle and San Francisco and other hot markets like Portland, Los Angeles, San Diego, Denver and Honolulu.
Redfin expects annual price growth nationally to sit somewhere around 3 percent over the first half of the year. For several years in a row, price growth exceeded 5 percent, and as recently as the first half of last year it was around 7 percent.
“Inventory will rise back up to 2017 levels, and price growth, while likely still positive, will be the lowest we’ve seen since 2014 or possibly even 2011,” Redfin’s Daryl Fairweather wrote.
Mass migration to cities — with many new residents recruited by rapidly expanding technology companies — in addition to very few homes for sale have led to skyrocketing housing prices across the nation, specifically in West Coast markets. Seattle held the title of the nation’s hottest housing market for nearly two years.
But more houses are on the market today — inventory is up 41 percent in the Seattle area in December, per the Northwest Multiple Listing Service — and pending sales are down as well. Seattle-area experts believe these trends portend slower price growth, more selection for buyers and a more balanced market overall in a place that has been overheated for years.
“I expect this trend (to a more balanced market) to continue into 2019, which will cause appreciation to slow somewhat, while giving buyers more options,” said OB Jacobi, president of Seattle brokerage Windermere Real Estate. “This does not mean the real estate sky is falling, rather it’s a much-needed shift towards a more sustainable, balanced market.”.
While price hikes are slowing on the West Coast, smaller, non-coastal cities like Buffalo, Rochester and Greensboro are surging.
Because of the cooling market and moderating prices, Redfin predicts that homeownership rates will rise. Builders will pull back on construction and focus their efforts on starter houses.
The Federal Reserve has been raising interest rates, and just today announced the fourth hike of the year. These interest rate increases have played a role in rising mortgage rates, and Redfin expects borrowing to continue to cost more next year.
While Redfin expects the housing market to cool, tensions over housing in big cities with significant tech economies will remain hot. Amazon became a lightening rod for affordability issues as it grew rapidly in Seattle in recent years. The same scenario is playing out in New York City, where Amazon plans to create a major hub with room for 25,000 employees.
“Growing cities will have to start building more housing now if they don’t want to face the affordability and homelessness problems that established tech hubs like Seattle and San Francisco are currently facing,” Fairweather wrote.