With 2019 just around the corner, it’s that time of year to think about what new things the new year will bring. As your trusted Real Estate Advisers, we are always studying the market and looking at what experts are predicting for next year. With
low inventory and increasing interest rates, it is no surprise that the real estate market is already showing signs of change; and change is not always a bad thing. For the 2018 residential real estate market, both nationally and locally, home prices
began to stabilize (instead of battling in bidding wars and rising prices of years past, buyers were finding prices normalizing by the end of the year). In 2019, experts believe, a slowdown of the region's hot market will continue. Based on
a survey completed by the Philadelphia Inquirer, below are the top five residential real estate predictions for this region in 2019.
1. Interest rates will continue to rise, which will slow the demand. After hovering for the last three years in the 3% range, the average rate on the 30-year fixed mortgage is right around 5% today, which is about 1% higher than it was at
the start of 2018. Economists predict that these rates will rise even further in 2019. The increase in interest rates could make it more difficult for buyers to purchase, especially those that are already stretching to purchase a property.
2. The single-family housing market will continue to cool, but not crash. After a real estate boom in the Philadelphia region over the last few years, we are finally beginning to see housing prices slow. In both the 2nd and 3rd quarters of 2018, there was 0% appreciation on home values in Philadelphia. The suburbs were not quite as bleak,
showing a 2.2% increase in the 2nd quarter of 2018, but the increase certainly lags behind the national average. Experts believe that the sluggish growth in values is due to the fact that buyers are tired of competing for homes in a hot market; after several years of bidding
wars and price increases, buyers have decided to sit it out until prices stabilize.
3. Philadelphia apartment rent prices will level off, but condo sales might be on the rise. With the high prices of single-family homes keeping some buyers out of the market, one would think apartments are in high demand, but experts say
that Philadelphia still has a lot of new apartment inventory to sort through before there can be an increase in prices. Experts also agree that there is an oversupply of rental housing, which will likely be absorbed in reasonable amount of time
– so not a bubble, but just a market fluctuation. However, unlike apartments in the city, the supply of condos is low and demand is high. Between April and June, 2018, 824 condos sold in the city, marking the highest quarterly volume of sales since
2007 and it is predicted that the condo market will continue to outperform rentals and sales in the city.
4. New construction will slow down. Since the real estate crash in the early 2000’s, the number of new housing units that have begun construction has slowly begun to climb. Economists expect this sluggish growth to continue next year.
Since the recession, the construction industry has battled labor shortages and dealt with fluctuations in land and material costs, which affects new construction. In addition, many of the new construction homes target 2nd and 3rd time home buyers, given that the profit margins are higher on these types of homes. The problem is that 2
nd and 3rd time home buyers are sitting on the sidelines, as noted above, and lower income or first time home buyers cannot afford them.
5. Discussion of the future of Philadelphia’s 10-year tax abatement will continue. For the last two years, concerns around Philadelphia's 10-year tax abatement — the policy that allows for new construction or improvements to existing
properties to receive tax-exempt status for a decade — have been brewing. Some argue that the abatement has been the backbone of the city's real estate boom and that taking it away could significantly slow down the housing market, while
others criticize the abatement as a subsidy for developers, fearing that a tax revenue that has been going uncollected for 10 years could be used to boost the budgets of other municipal services or programs. Philadelphia City Council is debating
whether to end it or change it. Time will tell.
Story provided by Caitlin McCabe, The Inquirer, posted Nov. 23, 2018.