Anyone who watched the economic downturn in 2008, or worse was hit by it financially, is going to be wary of any talk of another housing market bubble. Since things have gone so well in recent years, it's got several experts talking about the potential for another downturn or slowdown.
While an experienced local agent can help to protect you from making a major mistake, they can't predict the future. Here are a few things to know in 2019 before you decide to buy, sell, or invest in real estate.
Prices Are Trending Up But Fewer Offers Are Coming
Home prices have been making major jumps in recent years. In New York City, one purchase made by a billionaire ended up causing home prices to jump up by 10% across the city. While the wealthy are always influencing the economy, this is a huge jump in one of the biggest markets and caused a quick trend upward.
However, rising prices usually cause an increase in the housing stock, but that's currently being slowed because of increased mortgage interest rates. Fewer people are able to afford a mortgage and not wanting the home to sit on the market, sellers are reluctant to list. On top of that, many people are uncertain about the direction of the economy.
For savvy sellers, the answer is to be on top of what the competition is doing and working with an experienced local agent who can ensure that you price your home competitively.
Buyers and investors need to carefully manage their assets. There might not be much of a return for people buying in the hottest markets in the country. In fact, home prices drop after a bubble bursts, meaning that mortgages set during this period are going to remain at that price even if home values drop.
Saving your investment until the dust has cleared is a smart idea when we face economic uncertainty.
Interest Rates Are Moving Up
After being at a total standstill for the past few years, mortgage interest rates are now starting to change. They're projected to hit the 5% mark soon; mortgage rates haven't gone this high in a while, nearly 7 years.
For sellers, this means that homes will sit on the market a little bit longer and they'll likely receive fewer offers than expected. It's going to be more essential than ever to find an experienced local agent who can market and sell your home to buyers who might be more reluctant.
Investors are going to either want to buy in cash or wait it out in case prices drop. The more you invest now, the more you could stand to lose.
For the average buyer, it might be best to look at outside markets they hadn't considered before. However, in the grand scheme of things, mortgage rate changes are still relatively low. If you're looking to buy your first home, you should take action now rather than waiting to save a few thousand. Overall, it's better to start building equity now than to wait it out.
Millennials Are Changing the Market
Millennials are the first generation in several generations that is not going to make more money than their parents. Even though they've reached the age when previous generations were already homeowners, they are being held back by student loans and underemployment. However, millennials will soon account for 45% of the market for mortgages, surpassing boomers, and Generation X when it comes to who is out house hunting.
Home sellers need to know their buyers, now more than ever. They need to create high-quality photos for online listings and get comfortable posting to the most popular listing sites. If this is out of reach, working with an experienced local agent can ensure that you connect with this growing market.
Millennial investors are going to be investing differently than any other generation. First, they know what their peers want, giving them an advantage about where to look for property. Secondly, they're going to want easy investing options where they don't have to commit to an entire development, so expect them to invest in ETFs and REITs.
Buyers need to expect a lot of competition between other millennials. Three-bedroom, single-family homes in the suburbs might not be the easiest thing to afford, so being flexible with what you need in a home can make a big difference. Millennial buyers might think they can navigate real estate on their own, but having an experienced local agent to guide you can make the whole process much easier and less stressful.
What if the Bubble Bursts?
In 2008, a major housing market bubble burst. Home prices sank and homeowners ended up being saddled with mortgages for houses that were worth half of what they owed. While much of the country has bounced back since many homeowners damaged their credit by defaulting and are still wary of the real estate market.
However, the gap between home prices and affordability needs to be huge for the bubble to burst again. Since there have been some financial reforms made, the chances of a crash as large as the last one are slim.
Experts look for specific trends to coincide before they start declaring a downturn. If interest rates go up and more houses sit on the market for longer, that's when it starts to look like a downturn. If the market shifts, homeowners and investors who aren't prepared could be blindsided by the changes.
Working with an agent who knows your local market will ensure that you stay informed of changes as they happen.
How to React to a Bubble
With almost every kind of asset, values go up, plateau, and then go up again. However, the timeline for this can be much longer than is comfortable for most homeowners. If you're not prepared to go on a rollercoaster ride or are buying a home that's at the limits of affordability for you, you can be easily pulled underwater.
Housing is an appreciating asset if history tells us anything. That doesn't mean that your own investment is a sure thing. You need to look carefully at the local market and ensure that the region isn't going to see a total collapse. If the job market is growing steadily, your housing investment isn't going to suffer any major issues since demand should stay fairly steady.
And not every bubble bursts. Sometimes, the bubble just stops inflating for a little while. If your finances aren't robust enough to handle a deflation, you need to either scale back the amount you invest in a home or wait it out until you're more prepared to invest.
Fearing a bubble bursting is natural if you lived through and survived the 2008 crash. Buyers, sellers, and investors all got hit in a crash that shook the entire world's economy. The best way to protect your investments is to do as much research you can and to work with experienced local realtors.
Protect Yourself from a Housing Market Bubble
While you might think there's no way to stay safe from a coming housing market bubble, working with an agent who knows your local market is essential. Conditions can change from one zip code to the next and so you need to work with someone who understands that.
Since sellers are going to foot the bill for real estate agents, buyers and investors should work with the most well-informed local realtors. Working with a Clever Partner Agent can ensure that you qualify for a $1,000 Home Buyer Rebate to help cover closing costs.
Sellers who want to minimize their costs should work with a low-commission agent who can save them thousands in fees when it comes time to sell their home.