Housing market activity slowed in the second half of 2018 in response to higher mortgage rates, though home price appreciation remains solid at 5.1 percent year-over-year according to the 2019 Housing Outlook published this week by BBVA Research.
Home prices are driven by a shortage of both new and existing homes for sale. The lack of new homes has been a feature of the housing market since the Great Recession, and it is unlikely new construction will increase enough in 2019 to alleviate the shortage. Existing homes supply will remain low due to higher interest rates, which is likely to prevent current homeowners from selling and relocating, per the report.
Demographics will continue to drive demand, with aging Millennials forming families and searching for single-family homes in suburban areas, while Baby Boomers have still not started downsizing at a significant degree. The attractiveness of large coastal areas will remain, but the lack of affordable housing will drive some residents to smaller metropolitan areas away from the coasts.
Demand for apartments in attractive areas will remain strong, driven by the strength of the local economies and lack of affordable ownership options. Mid-sized metropolitan areas that can attract young families are likely to benefit from the rebalancing in the housing market in the wake of lower affordability. However, small metro areas and rural regions will continue to struggle to attract residents.
In all, while affordability will remain an issue, demographic trends will continue to support housing demand. While home price appreciation will slow, it will remain solid. The report further states that tighter financial conditions will help rebalance some of the regional disparities built up over the last decade.
For more details, read the full report here.
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