Predictions For The 2019 Real Estate Market

The real estate market has been on an upward trend for a number of years now.  The stock market has also been on a bull market run for a record amount of time and based on recently volatility that upwards trend is being strongly challenged.  With interest rates being raised by the Federal Reserve that has pushed mortgage rates up as well which in turn is putting pressure on home pricing.  With higher interest rates the price of a home will need to be lower in order for buyers to afford the home at the same monthly payment or they will look for lower priced homes that meet their requirements.  This article will look at the current real estate market trends and attempt to make some guesses for the future.

Today’s Real Estate Market

In many markets average home prices have reached or surpassed the prices that were in play prior to the 2007 real estate market crash.  While some may argue that today’s market is more stable since the exotic no document loans or 125% mortgages are not present that does not mean a financial house of cards does not exist that could bring both the real estate market and the stock market crumbling down.  Just as happened in the past mortgage lenders are reducing their lending standards in order to issue more mortgages and that is not a good thing.  

Whereas in the immediate past there were higher requirements with regards to debt ratios versus income those have been relaxed allowing those with more debt to buy a house.  The problem comes when buyers do overbuy on a house and while they may be able to handle the payments now, as interest rates increase that pushes the cost of other debts payments with variable interest rates higher.  So a consumer with variable rate credit card debt, variable rate home equity line of credit (HELOC), variable rate car loans will find their monthly payments increasing along with interest rates which will put a squeeze on their budgets.

Many buyers feeling flush with cash from stock market gains also may mistakenly over estimate their ability to keep up with all the other bill payments by thinking if worse comes to worse they can borrow from retirement accounts or liquidate stocks in order to keep up.  Those with stock accounts using margin (borrowing to buy stocks) will experience budget shock if margin calls are made during stock market drops and they are forced to put cash into their accounts in order to meet the minimum margin requirements.  That cash that would have been normally used to pay the monthly mortgage payments, pay the credit cards bills now must either be paid to keep stock accounts liquid or the owners risk having their stock sold in order to meet margin call requirements.

One of the main drivers for reducing lending standards is the lower demand for mortgages.  Reduced demand for mortgages also indicates buyers are increasingly getting priced out of the market and opt not to buy or upgrade their home.  Mortgage lenders want to keep lending since a majority of lenders do not hold the loan once it is complete.  Instead those lenders will sell the loan individually or as a package to other investors including government sponsored entities (FNMA, FHLMC and more).  As a result there is a strong incentive to push the line as much as possible and offer anyone who is potentially qualified a mortgage all in the name of homeownership.  While homeownership can be great it is not for everyone and can quickly turn into a nightmare for some especially when the economy turns.

Basically many consumer budgets are stretched to their limit with very little room for adjustment and with very little savings a decrease in the value of stocks or a decrease in value of homes (no more HELOC borrowing) will put a big pinch in household spending. In essence today’s economy and real estate market is still a house of cards that could collapse causing widespread pain along with it.

Predictions for the Greater Cincinnati Real Estate Market

During the last housing correction the Cincinnati market did not suffer much as a whole since the market never ran up as much as other markets did.  This time though there is more focus on Cincinnati due to its lower cost of living and recent urban core redevelopment.  Over The Rhine or the OTR area is talked about nationally due to the turnaround from an area nobody wanted to visit to now where condos in excess of half a million dollars are common all due to the redevelopment done in the area.  With that and combined with the recent statistic that Cincinnati has become the number one economy in the state of Ohio compared to its other cities out of state investors have taken notice.  As a result the Greater Cincinnati has seen its fair share of investors from all over the world putting money towards real estate redevelopment projects and housing purchases.  There is a lot of out of state money chasing Greater Cincinnati property values up which when a correction happens will mean the properties prices will have more room to fall.

Many of these investors are deploying cash from stock market gains, easy money from mortgage and bank lending.  As the stock market corrects which it inevitably will and banks are forced to become strict again with their lending standards where are investors more likely to pull back from?  Local investors may indeed keep their money parked locally but out of state investors are more likely to pull money they invested remotely to cover shortfalls in their stock accounts and when lenders become strict with loans.  Especially where remote investors were hoping for high returns from cash flow and appreciation a market correction will force them to pull their cash back when times are tight.

The end result will be lower prices and deals to be had.  Local Cincinnati investors and residents would be wise to pay down high rate debt and save up cash if they are interested in acquiring real estate for personal or investment purposes.  Those who intend to move or want to cash out of existing holdings should look to selling early in 2019 while the market is still showing some signs of strength.  If possible real estate buyers may want to take a wait and see approach before buying.  If you need to purchase now, then even though prices may be lower in the future comfort can be taken that interest rates should be pushed down by the Federal Reserve in attempts to orchestrate a soft landing.  If you are in a position to refinance to a lower rate then by all means one should do so in order to reduce lifetime interest costs on long term real estate loans.

Additional Resources

• Bounce In Existing Home Sales Unlikely To Happen by Mike Shedlock
• Hyper-Financialized Housing Will Only Get Worse by Aaron Layman
• A Look At Global Debt Totals by Mike Shedlock
• Consumer Debt At All Time High at AmercianBanker.com

About the author: The above article “Predictions For The 2019 Real Estate Market” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you.  Contact me today!

I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.