We’re currently sitting in a market that should be inspiring a real estate frenzy. Consumer sentiment about buying a home is higher than it’s been in five years. Home price appreciation is slowing down. Mortgage rates are slipping to a rate of 3.82%, a two-year low. While these are great numbers, it’s not leading to the kind of excitement it should be.
“We are in an extremely interest-rate-sensitive housing market,” said Daren Blomquist, vice president of market economics at Auction.com. “There’s a lot of hopefulness that cycle will repeat in 2019.” But, it’s just not happening. People aren’t buying home like they would in the past. Mortgage applications have dipped by 2% according to the Mortgage Bankers Association.
A lot of it is gun-shyness from the economy that is still recovering from the last recession. Buying a home is a riskier investment now. Due to rising mortgage rates last year, many Americans decided to get into a ‘rate-lock’ mortgage, so they already have low-interest mortgages and have no need to change it, which would be risky.
“Rates are clearly not the only factor people consider,” said Danielle Hale, chief economist at Realtor.com. While rates have gone down, homeowners are facing prices that continue to be expensive. They’re not seeing the motivation they need to decide to move up and purchase larger pieces of property.
Tax Fallout Hurting Home Buying
Another major issue keeping homebuyers from taking the leap is Trump’s changes to the tax code. The deduction for state and local taxes has been capped, preventing new buyers from getting a lower rate of property taxes. Now that those are moving upward, it’s preventing new buyers from jumping in.
“You’re facing a triple-whammy right now,” said Rick Sharga, a mortgage industry veteran and CEO of CJ Patrick Company, a real estate and financial services consulting firm. “A lot of the financial incentives that a move-up buyer would have had a couple years ago no longer exist.”
In the past year, the median U.S. home listing price jumped from $297,200 last year to $315,000 in 2019. “It’s really difficult to forecast where rates are going to go right now because there’s so much uncertainty,” Hale said. “Anytime there’s a lot of uncertainty that just sets the market up for disappointment.”
Despite the positive indicators, people are scared away from buying a new home. There’s nothing out there right now to push them into that decision. In fact, it hurts them in several ways. Hopefully this will change soon and the market will go back to being a buying frenzy.
