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Housing is Strong going into 2019

A recent headline in California suggested that home purchases are slowing down and values are expected to crumble soon.  You can read the article here.  This quite simply is not true and while California has been a predictor for the housing markets in the past, there are new regulations and conditions which determine the strength of overall housing going into 2019.

Market Factors

A first-time Buyer considering a home purchase in 2019 might fear a recession in the next couple years.  Given that most of these buyers were teenagers during the 2008 crisis, it’s expected there is hesitation.  I can promise a recession at some point, but it won’t be because of housing.  We must remember that the 2008 crisis was due in large part to predatory lending practices and inflated home values, much of which was not regulated.

Fast forward to our market today, housing remains strong with low inventory and a high demand.  Check out 6 reasons to buy a home for additional insights.  Remember that jobs, inflation, and consumer consumption drive the market and determine how the economy trends.  Housing is predicated on these core areas and the data suggest a strong outlook in 2019.

 The Fundamentals

Most people do not realize interest rates drive spending and the overall economy.  If you can borrower money cheap, you have more opportunities for investing with a higher return.  Borrow money at a higher than average rate, your margin is less.  Interest rates for housing have gone up, but it is still less than the 30-year average at 7%.  Check out the rates for home loans in 1985.

Source Freddie Mac 

While home prices have increased since this time, so has the appreciation factor for owning a home.  In the Phoenix market, appreciation is consistent at 4% – 6% a year.  Can this slow down?  Yes, and expect appreciation to stabilize to a normal level in 2019 to a 2% – 4% level.  A home’s appreciation will depend on the kind of home purchased.  Consider square footage, amenities, location, year built, renovations, livability, etc.  All these factors influence a Homebuyer’s decision to buy a home.  Less homes on the market means more opportunities to sell your home at a higher price.  But why are there less homes on the market?

Remember that jobs influence a decision to own a home.  What kind of stable jobs are out there in the economy and how are people spending their money?  Consumers by nature want to save monthly on their expenses and plan for the unforeseen so they do not lose everything they worked for.

Homes bought over the last 10 years were purchased at super low rates (some at 3.25% on a 30-year fixed mortgage) and close-out prices.  It’s tough to walk away from an 1,800 square foot home with a $800 a month mortgage payment.

Affordability has Changed

Inflation drives the price of goods and services.  The recession of 2008 taught a lot of first-time and seasoned homebuyers not to overleverage themselves with debt or risky spending.  Most people watch what they are spending and as prices go up, spending curbs and goes down.  Owning a home fixes a lot of monthly expenses and creates stability therefore enabling consumers to afford the things and activities they like.

That’s where the affordability factor comes in.  With home prices and interest rates going up, the cost to own is much higher.  The P&I on a $200,000 30-year fixed loan at 3.875% in 2012 was $940.47.  Today, the P&I on the same loan but at 4.875% is $1,058.42, over $100 higher per month.  Factor that property taxes have increased 2% – 4% during that time, you can see how the differences add up.

The average home price in Maricopa County, AZ is $275,000 making the affordability income to qualify for a home loan at that price point almost $65,000 per year.  Yet, the appreciation gain on this home is projected over $25,000 in the next 5 years.  That’s roughly 3.4% appreciation per year compounding itself over 5 years.  Even if there is a recession and home values slow or drop slightly, your appreciation gain now hedges you from going underwater.

When home sales seem to be falling, remember that inventory is low and affording a home requires more income than the last 10 years.  We are in a stable and normal housing market compared to before the recession and after the recovery.

Source: MBS Highway

Should I sell my Home?

This is a question I get often when helping clients pre-qualify for a new mortgage loan.  The answer really depends on your goals.  Are you paying off debt?  Do you want to be closer to town?  Are you becoming an empty-nester?  Do you need more space because the family grew?  Do you just want to be in a new place?  All are valid questions.  The timing is ripe and the advantage to buying a home now or in the next year are still in your favor.


It seems like I am in favor of homebuying because my business is predicated on originating home loans.  There is a bias there that I admit.  However, the data is reasonable and observing the day-to-day activities in the market tell me we’ve entered a new era in housing that will last well into the next 10 years because the demand for owning housing holds in favor the weight of consumer spending, inflation and jobs.  A lot of people are moving out of California because on the cost of living, creating a strong demand for housing in Arizona.

Chris Gonzalez
(480) 442-4494

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4 thoughts on “Housing is Strong going into 2019

  1. […] markets for cost of living affordability and economic growth.  This means owning a home and/or buying a home in 2019 will still help you take advantage of an appreciating market when values […]

  2. […] A recession will have some down turn in your home’s value, but remember, you’ve gained equity today.  You’ll either not gain equity during the recession for that year or drop down to the value at which you purchased your home.  Some values may dip slightly lower, but it’s not expected that the masses will experience the 40% – 75% drop they encountered in 2008 – 2011.  The regulations and guidelines we use to underwrite mortgage loans were implemented to hedge against housing repeating what happened in 2008.  Check out my post Housing Strong going into 2019. […]

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