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Last week, the National Association for Business Economics released their February 2019 Economic Policy Survey. The survey revealed that a majority of the panel believe an economic slowdown is in the near future:

“While only 10% of panelists expect a recession in 2019, 42% say a recession will happen in 2020, and 25% expect one in 2021.”

Their findings coincide with three previous surveys calling for a slowdown sometime in the next two years:

1. The Pulsenomics Survey of Market Analysts
2. The Wall Street Journal Survey of Economists
3. The Duke University Survey of American CFOs

That raises the question: Will the real estate market be impacted like it was during the last recession?

A recession does not equal a housing crisis. According to the dictionary definition, a recession is:

“A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”

During the last recession, prices fell dramatically because the housing collapse caused the recession. However, if we look at the previous four recessions, we can see that home values weren’t negatively impacted:

• January 1980 to July 1980: Home values rose 4.5%
• July 1981 to November 1982: Home values rose 1.9%
• July 1990 to March 1991: Home values fell less than 1%
• March 2001 to November 2001: Home values rose 4.8%

Most experts agree with Ralph McLaughlin, CoreLogic’s Deputy Chief Economist, who recently explained:

“There’s no reason to panic right now, even if we may be headed for a recession. We’re seeing a cooling of the housing market, but nothing that indicates a crash.”

The housing market is just “normalizing”. Inventory is starting to increase and home prices are finally stabilizing. This is a good thing for both buyers and sellers as we move forward.

Bottom Line

If there is an economic slowdown in our near future, there is no need for fear to set in. As renowned financial analyst, Morgan Housel, recently tweeted:

“An interesting thing is the widespread assumption that the next recession will be as bad as 2008. Natural to think that way, but, statistically, highly unlikely. Could be over before you realized it began.”

Heading into the spring buying market, there are strong trends starting to emerge.

The inventory of homes for sale has increased on a year-over-year basis for eight months in a row. Home price appreciation has continued to grow, although at a slower rate. The homeownership rate has reached heights last seen in 2014, with millennials and Generation X leading the way!

Let’s dive a little deeper into some of the recent reports that have been released and what they mean for the spring buying season!

1. National Association of Realtor’s Existing Home Sales Report

Sales of existing homes were down for the third consecutive month in January. Some of this can be explained by the natural seasonality that the real estate market experiences every year, and some can be explained even further by a lack of homes available for sale on the market.

Inventory

For the last eight months, the inventory of homes for sale has been higher when compared to the same month the year before. The challenge in the market is the mismatch of the type of home that is available for sale. First-time homebuyers looking for a starter home are often competing with other buyers to stand out, often outbidding each other.

Lawrence Yun, NAR’s Chief Economist, agrees that the market is still experiencing an inventory shortage.

“In particular, the lower end of the market is experiencing a greater shortage, and more home construction is needed.”

Home Prices

The median home price for homes sold in January was $247,500. This is up 2.8% from January 2018 and marks the 83^rd consecutive month of year-over-year gains. The 2.8% growth in home prices represents the smallest year-over-year change since February 2012 but is a welcome change for buyers who had feared being priced out of the market.

Days on the Market

Properties that sold in January were on the market for an average of 49 days with 38% of homes on the market for less than a month.

Yun is positive about how today’s market conditions will help buyers this spring,

 “Existing home sales in January were weak compared to historical norms; however, they are likely to have reached a cyclical low. Moderating home prices combined with gains in household income will boost housing affordability, bringing more buyers to the market in the coming months.”

2. NAR’s Pending Home Sales Report

The national Pending Home Sales Index (PHSI) rose 4.6% to 103.2 in January from 98.7 in December. An index score of 100 is considered normal. All four major regions of the country experienced gains in January, with the largest increase coming in the South.

 “The PHSI is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.”

Increases in the PHSI often predict increases in the level of home sales in the coming months, which is great news for the housing market leading in to spring! Yun had this to say,

“Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers.”

Bottom Line

The housing market in 2019 will require homeowners to list their house at the right price to attract buyers. If interest rates continue to stay low while wages increase, and more inventory comes to market, 2019 could be one of the best years for home sales in recent history.

With home prices softening, some are concerned that we may be headed toward the next housing crash. However, it is important to remember that today’s market is quite different than the bubble market of twelve years ago.

Here are three key metrics that will explain why:

1. Home Prices
2. Mortgage Standards
3. Foreclosure Rates

HOME PRICES

A decade ago, home prices depreciated dramatically, losing about 29% of their value over a four-year period (2008-2011). Today, prices are not depreciating. The level of appreciation is just decelerating.

Home values are no longer appreciating annually at a rate of 6-7%. However, they have still increased by more than 4% over the last year. Of the 100 experts reached for the latest Home Price Expectation Survey, 94 said home values would continue to appreciate through 2019. It will just occur at a lower rate.

MORTGAGE STANDARDS

Many are concerned that lending institutions are again easing standards to a level that helped create the last housing bubble. However, there is proof that today’s standards are nowhere near as lenient as they were leading up to the crash.

The Urban Institute’s Housing Finance Policy Center issues a quarterly index which,

“…measures the percentage of home purchase loans that are likely to default—that is, go unpaid for more than 90 days past their due date. A lower HCAI indicates that lenders are unwilling to tolerate defaults and are imposing tighter lending standards, making it harder to get a loan. A higher HCAI indicates that lenders are willing to tolerate defaults and are taking more risks, making it easier to get a loan.”

Last month, their January Housing Credit Availability Index revealed:

“Significant space remains to safely expand the credit box. If the current default risk was doubled across all channels, risk would still be well within the pre-crisis standard of 12.5 percent from 2001 to 2003 for the whole mortgage market.”

FORECLOSURE INVENTORY

Within the last decade, distressed properties (foreclosures and short sales) made up 35% of all home sales. The Mortgage Bankers’ Association revealed just last week that:

“The percentage of loans in the foreclosure process at the end of the fourth quarter was 0.95 percent…This was the lowest foreclosure inventory rate since the first quarter of 1996.”

Bottom Line

After using these three key housing metrics to compare today’s market to that of the last decade, we can see that the two markets are nothing alike.