What 2019 buyers and sellers can expect from our local market

Key insights

We expect that the 2019 Minnesota and western Wisconsin housing markets will be more balanced, but will resemble 2018 to a great extent. We’ll see ongoing supply and demand challenges at lower price points, along with more moderate appreciation in home prices. Interest rates may increase slightly, but will remain low by historical standards.

Sharry Schmid, president, Edina Realty

As president of Edina Realty, Sharry Schmid provides guidance and direction to nearly 2,500 REALTORS®.

There’s a lot of talk about a shifting market, but what does that really mean? I’ll share my thoughts on what to expect in the coming year — and why this market is different from the real estate bubble we saw in the mid-2000s. But before I do, let’s take a look back at 2018.

2018 in a nutshell

If you were a buyer in 2018, especially a buyer at a price point under $300,000, you likely found yourself facing off with others competing for the same homes. This left some buyers delaying their home purchases, reconsidering their must-haves or re-upping their rental agreements. A lack of homes in this price range also drove prices up — oftentimes to the glee of sellers.

Speaking of sellers, some of you may have found your home sale expectations falling short if you chose to wait until later in 2018 to list. While sales were still strong, sellers hoping to attract the same attention as their neighbors who sold in the spring were sometimes left disappointed…not because their home didn’t sell, but because it didn’t sell in record time at a premium price in multiple offers.

Why? There are a number of explanations, but many see a combination of things at work, including:

• Typical fall/winter slowdowns

• Higher interest rates leading to reduced affordability

• The midterm elections

• Deterred buyers deciding to delay for now and give it another go in the new year — or bow out altogether

What’s ahead in 2019

We anticipate that 2019 will resemble 2018 to a large extent when it comes to our Minnesota and Wisconsin housing markets, though there are a few shifting trends we can watch out for. If you’re anticipating a move in the new year, here are insights you can use as you prepare to buy or sell.

Greater balance. While we are still in a seller’s market, we expect prices to moderate as we move toward greater balance and shared opportunities for buyers and sellers, meaning the market will no longer significantly favor one over the other. An exception may be lower price points, which will continue to significantly favor the seller. One thing that will help create balance is an expected increase in listing inventory, which is both needed and healthy.Moderating appreciation. We will likely see a healthier 2-4 percent increase in sales prices, rather than the larger increases of the past couple of years. This is good news in the long-term for greater affordability, but sellers may need to adjust their pricing expectations and strategies as the market may not bear the prices their neighbors received last spring.Interest rates. While still historically low, mortgage interest rates have been rising slowly to make room for greater economic growth. Many economists agree that we will see interest rates for 30-year fixed mortgages rise to just over 5 percent in 2019, which could affect the buying power of some house hunters in the new year. However, some experts suggest that The Fed will be more patient with raising rates in 2019 based on softening investment activity, trade tensions, housing sales and other factors.Affordability. Affordable housing, especially for first-time homebuyers, will remain a challenge in our area. According to a recent article from the New York Times, from 2011 to 2017, wages in the Twin Cities rose 22 percent while home prices rose 46 percent.New construction. New home builds are projected to be on a similar pace to 2018. While the pace is strong, it is not keeping up with the housing demand, particularly in the first-time home buyer market.

One quick note about western Wisconsin

Edina Realty serves all of Minnesota, and our agents also serve buyers and sellers in western Wisconsin. While much of this Wisconsin area is showing similar trends to Minnesota, in terms of fast sales and moderate sales price increases, the western Wisconsin market also boasts much more inventory than that of Minnesota.

High inventory is one sign that the market is shifting to favor buyers, so we’ll be watching closely to see if western Wisconsin’s market shows other signs of a buyers’ market.

What about a bubble?

We’re often asked if our market is on the verge of another bubble burst. The short answer is no, and there are a number of compelling reasons why, including today’s:

• Tighter and more highly regulated lending practices

• More moderate sales activity

• Ongoing growth in household formation among millennials, who are of prime home buying age

According to Lawrence Yun, economist for the National Association of REALTORS®, "The current market conditions are fundamentally different than what we were experiencing before the recession 10 years ago. Most states are reporting stable or strong market conditions, housing starts are under-producing instead of over-producing and we are seeing historically low foreclosure levels, indicating that people are living within their means and not purchasing homes they cannot afford. This is a stronger, more stable market compared to the loosely regulated market leading up to the bust."

The bottom line

Minnesota has a low unemployment rate of 2.8 percent (The Twin Cities area is at 2.2 percent), a large budget surplus and a strong overall economy, all of which lend themselves to a more typical cyclical slowdown in real estate and not the steep downturn of 2008.

As always, price movements are the way supply and demand match up with each other, and the housing sector is always moving through these cycles — but at a slower rate than other markets might.