It’s been quite a year—and we’re not just talking about former President George H.W. Bush and Sen. John McCain being laid to rest, the seemingly never-ending twists and turns in the Robert Mueller investigation, or even Beyoncé‘s killer performance at Coachella. There’s been plenty of drama in the world of residential real estate—news stories with plenty of real-life consequences for buyers, sellers, and homeowners.
The ups and downs of financial indicators, a corporate behemoth’s search for prime real estate, and even Mother Nature shaped market realities this past year, and will continue to do so in the years to come. Need a refresher? Here are 2018’s most noteworthy stories in residential real estate—along with what you’ll need to watch for in 2019.
The housing market has begun slowing down
Undoubtedly, the biggest news in the world of residential real estate is that after years of seemingly endless price growth, the market is starting to slow down.
This year started out much like the previous one: sky-high prices, rapid price appreciation, rising mortgage rates, and a dearth of homes for sale leading to a surge in bidding wars and offers over asking price. And then at the end of summer, something shifted.
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Suddenly, there were more homes hitting the market. Sellers, believing the market had peaked, wanted to cash in while their homes could still fetch a high price. However, there were fewer buyers who could afford home prices that were still reaching new records. Other aspiring homeowners are still waiting to see which new properties will go up for sale and if prices will do what was unthinkable just a few months ago: come down.
And in fact, price appreciation has slowed in much of the nation. Some sellers have been forced to slash prices to move their homes. And the market is now moving from one where sellers call the shots toward one favoring buyers.
What does that mean for 2019? Well, no one really knows. But realtor.com®’s forecast predicts there will be fewer home sales, with an anticipated 2% decline; slower price appreciation, like a 2.2% rise compared with the 8.5% increase we’ve seen so far this year; and slightly more of the sorely needed inventory.
Mortgage interest rates went up
Mortgage interest rates have played an important role in the slowing of the housing market. That’s because as they go up, so do monthly mortgage payments. And we’re talking big bucks: A single point increase can add more than $100 to a monthly bill and tens of thousands over the life of a 30-year, fixed-rate loan. That plus higher home prices are taking a toll on prospective homeowners.
The result is, more buyers are pushed to the sidelines. Others are purchasing cheaper and smaller homes, moving to less desirable locations, or considering inexpensive fixer-uppers.
Mortgage rates reached a high of 4.94% in November, before tumbling down a bit to hit 4.75% earlier this month. While that’s a welcome reprieve for buyers, they’re unlikely to keep going down. The Federal Reserve is poised to continue hiking short-term interest rates this year and into 2019. And while mortgage rates aren’t tied to the short-term ones, they typically follow suit.
What does that mean for 2019? Buyers should anticipate rates exceeding the 5% threshold.
Amazon’s second headquarters will be split between two cities
Amazon dominated headlines as it made itself the prize of a national bidding war. Cities threw just about every tax incentive and perk at the online retailing giant in bids to become home to the company’s second headquarters—and the up to 50,000 high-paying jobs that Amazon said would come with it. That many jobs have the potential to transform just about any housing market, leading to building booms, inventory shortages, and higher rents and home sale prices.
Then Amazon did something completely unexpected. Instead of creating a single second headquarters, the tech behemoth announced last month that it will divide HQ2, as it’s called, between two sites: Long Island City, a burgeoning neighborhood in the New York City borough of Queens, and the Crystal City neighborhood of Arlington, VA, just outside Washington, DC.
Before the announcement, there had been a glut in Long Island City of new, luxury condos and rental units that developers couldn’t move despite throwing out concessions like a free month’s rent, and other perks. Just after the news broke, prices shot up and buyers are now everywhere.
Prices have also begun rising in Crystal City, say real estate professionals. However, the area consists more of office buildings than residential neighborhoods, so demand is more likely to be felt in the surrounding locales.
What does that mean for 2019? The housing market may be softening nationally, but buyers and renters should expect fierce competition and higher prices for homes anywhere near Amazon’s new headquarters—both of them.
The president’s tax changes are going to affect homeowners
First, the good news: President Donald Trump‘s tax plan that went into effect this year has put more money in the paychecks of many Americans. And since it doubled the standard deduction, more folks who don’t bother with pesky itemized deductions can expect fat tax refunds next year.
But the bad news is that homeowners, particularly those in the priciest parts of the country, may be paying the price.
That’s because under the new plan, homeowners can write off only up to $10,000 in property and either income or sales taxes. So folks in high-tax states like New Jersey, New York, and California could wind up with less cash in their pockets this year.
In addition, the new tax plan allows new homeowners to deduct the mortgage interest off loans only up to $750,000. The old limit was $1 million (existing homeowners are grandfathered in).
This may sound like a problem reserved for the 1%, since the median home price nationally is just $293,000. But in high-priced housing markets such as Silicon Valley’s San Jose, CA, the median price exceeds that threshold, clocking in at a whopping $1,083,050. And the nonmillionaires who work in these areas need places to live.
What does that mean for 2019? Homeowners in the most expensive parts of the country are likely to feel some financial pain when they realize just how much these changes will cost them. And there may be fewer buyers in these areas as a result.
Natural disasters plagued the coasts
This was another heartbreakingly horrible year for natural disasters, particularly when it came to hurricanes and wildfires.
Hurricane Florence hit the Carolinas with a vengeance, making landfall on Sept. 14 as a Category 1 storm outside Wilmington, NC. Fifty-three people in North and South Carolina and Virginia died as a result of the storm, while tens of thousands of homes were estimated to have been damaged.
Just a month later, it was followed by Hurricane Michael, which slammed into the Florida Panhandle on Oct. 10 as a Category 4 storm. The storm devastated Mexico Beach and Panama City, decimating thousands of homes and claiming at least 44 lives.
Meanwhile, California was devastated by hundreds of ruthless wildfires.
The Woolsey Fire began on Nov. 8 and spread across Los Angeles and Ventura counties. It eventually killed three people and destroyed 1,500 structures and damaged an additional 341.
It made headlines for burning down celebrity homes in Malibu, including those of singers Miley Cyrus, Neil Young, and Robin Thicke. Actors Gerard Butler and Tracey Bregman, and “Real Housewives of Beverly Hills” regular Camille Grammer, also lost their residences to the Woolsey fire.
Yet, the state’s deadliest wildfire was the Camp Fire, which killed 85 people, destroyed nearly 14,000 homes, and wiped the town of Paradiseright off the map. The fire began on Nov. 8 in Butte County, about an hour and a half north of Sacramento.
What does that mean for 2019? Unfortunately, natural disasters are only expected to get worse, thanks to climate change. Clare Trapasso is the senior news editor of realtor.com and an adjunct journalism professor at St. John’s University. She previously wrote for a Financial Times publication, the New York Daily News, and the Associated Press. She is also a licensed real estate agent with R New York. Contact her at [email protected] Follow @claretrap
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