In 2018, experts said that home prices throughout the U.S. would increase from three to five percent over the next year. Now, that is actually normal when compared to overall, historical trends. As one expert wrote, ” When looking back 30 years or so, home prices in the United States tend to rise by about 3% to 4% annually — despite the occasional bubble or bust.”
However, for the year 2019, there are some changes expected. Though they all agreed that the “normality” of the pricing increases would continue, they did also call the last few years “above average” in terms of price growth. What they said was that values have been steadily increasing, and the cause for it seems to be higher demand and limited inventory.
So, the question of “normal” does seem to rise out of the data. After all, one report indicated that the three to four percent growth is normal, historically, while median home values did rise by almost eight percent between 2017 and 2018, which is well above the norm.
In fact, the reports indicate that certain cities saw double-digit growth in the last few years. It is why the report and forecasts for 2019 explained that “year-over-year appreciation might be slowing to a more ‘normal’ pace… [with a] recently offered a forecast for 4.2% growth over the next 12 months or so. This outlook was issued in May 2018 and therefore extends into the spring of 2019.”
What About Inventory?
While pricing is anticipated to normalize in the coming year, the situation with available inventories is not. In many areas, there is a lower level of supply than ever before, and the available listings are not meeting consumer demand. Clearly, this means that prices will increase sharply in the most competitive markets. Additionally, there does not seem to be an end in sight, with the most competitive urban markets having less than six months of inventory on hand. In fact, most cities in the U.S. were at such lows, and some even more dire with only a two month supply of housing options.
Pressures are increasing in suburban areas, too. This is due to the rise of the “urban-suburban” neighbors preferred by the group known as millennials. They want areas with high walkability scores and lots of amenities, as well as good schools, and this is carving out new suburbs in previously untapped areas – further pressuring inventories.
What does all of this mean for buyers, sellers, and consumers in general? It means that pricing is going to continue to increase, which analysts are expressing serious concerns over. As one report noted, “House prices need to cool down a bit, for the sake of long-term sustainability and affordability.”
Will they? That is something we have to wait to see. The Mortgage Bankers Association says it expects rates to become volatile in the next years, with changes spiking to 5.3% by 2020. That is still a relatively workable rate, but as to inventory, it is impossible to gauge where markets might go in the coming months and years.