As we enter the second half of 2019, many people are curious where the housing market is heading. Are we nearing a recession? Will there be another residential real estate crisis?

Despite volatility in recent months, the overall economy has remained relatively strong. The housing market has continued to perform well during the last few years as home values have increased and interest rates have remained attractive. However, there may be concerns about an economic slowdown which could trigger a recession in the near future.

Several factors may affect the housing market in the coming months. Here are five key trends to consider:

  1. Low Mortgage Rates – Interest rates have declined throughout 2019. Currently, they are very attractive for homebuyers. However, there is still a need for a down payment, which could influence affordability for some buyers. Additionally, tighter lending standards are affecting the mortgage approval process. However, the current interest rate environment could spur home purchase activity.
  2. Strong Rental Market – Construction of new apartment buildings continues. The “live, work, play” lifestyle is an attractive alternative to purchasing a home, particularly for empty nesters and millennials. However, a large number of millennials are reaching peak home buying age and may desire home ownership with attractive mortgage rates.
  3. Rising Inventory Levels – Homebuilders are very active and continue to build new inventory. As a result, historically low inventory levels have ticked upward throughout the first half of 2019. Builders are proceeding cautiously as they continue to face increases in land prices, labor shortages, and higher material costs. Overall, the additional inventory is creating more options for homebuyers who can afford to purchase new construction.
  4. Positive Earnings / Wage Growth – The job market continues to remain strong with historically low unemployment levels. Strong job creation and modest wage growth has been leveling off during the recent months, but the labor market is still very positive. A solid job market directly affects purchasing power for individuals looking for a change in housing.
  5. Tax Law Changes – The Tax Cuts and Jobs Act (TCJA) of 2017 includes tax rate reductions and several benefits for individual taxpayers. However, the TCJA also includes a cap on the deduction for state and local taxes, including property taxes, which is limited to $10,000. Additionally, there are limitations on the interest deduction on mortgages. These tax law changes may have a negative impact on existing and future homeowners. As a result, some individuals may opt to rent instead of purchasing a new home.

The housing market has experienced several years of recovery and positive trends since the Great Recession. Many key indicators may affect the market in the near term, including interest rates, inventory levels, job growth, tax changes, and the demographics of the rental market. While many people remain optimistic about the housing market’s prospects heading into 2020, at some point we will see an economic contraction.  When the next recession occurs, the housing market will likely not be affected at the level of crisis that was realized during the Great Recession.

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