With spring on the way, many home buyers are starting their hunt for a new home. But with the housing market in transition, will they be able to find what they’re looking for?
Thus far this year, the 30-year-fixed has averaged 4.46 percent, down from 4.54 percent in 2018. The dip in interest rates, combined with modest gains in home prices, have helped turn some parts of real estate into a buyer’s market – but one clouded by at least some uncertainty.
“Going forward, it won’t be the record number of sales we saw in 2017, but we have seen mortgage rates come down considerably over the course of even the new year,” Nela Richardson of Edward Jones Investments and former chief economist at Redfin, told CNBC’s “On the Money” in an interview. “That is a good advantage for buyers.
However, it wasn’t just interest rates that caused buyers to pull back in 2018. Many home buyers couldn’t find a home that fit in their budget, and Richardson said that’s not likely to change this year.
“That’s going to be the myth in the housing market you are going to see play out in 2019. You’ll see reports that inventory is increasing, but it’s increasing at price points that are not affordable to millennials or first time buyers,” she said. “And that has been persistent for the last five years.”
Richardson stated that one area where buyers and sellers could see savings are in real estate agent commission fees.
“I understand the value of the real estate agent but there is a point where technology can improve and make that technology more efficient, lower cost and that is the ultimate hope for home buyers and sellers going into tomorrow,” she said. “But we’re not there yet.”
Taxes and hurricanes
The federal tax code saw a major overhaul in 2018, and it has big implications for homeowners. Those applying for a new mortgage this year will only be allowed to deduct interest on home loans up to $750,000, down from $1 million. Also, there is a $10,000 itemized deduction cap on state and local taxes.
Still, Richardson doesn’t see this having an impact just yet.
“I think this will take a few years to play out. Bottom line is if you combine high taxes, [slowing] but higher interest rates, and high prices, you get a mix that demands a solution,” Richardson told CNBC. “That solution is more homes. And yet our zoning regulations don’t accommodate that.”
In Houston, where Hurricane Harvey struck in 2017, 80 percent of homes that flooded lacked proper coverage.
That should be a wake up call for home buyers to consider whether your next potential home could be at risk of a flood or other natural disaster. But Richardson said that’s not the case.
“The buyer is counting the bedrooms, they’re looking at their monthly wages, and they’re not thinking ‘I could live in a place that floods especially if it’s not on any kind of flood map,'” she said.