Despite industry worries over slowing home sales, builders have many reasons to feel optimistic about 2019, according to a new Meyers Research analysis. “It’s really a confusing time, so many people are asking what’s going on, particularly in that fourth quarter of last year,” says Meyers Research principal Mollie Carmichael, referring in part to declining builder confidence numbers and end-of-the-year stock market volatility.
“We’re seeing news headlines that are scaring consumers,” she said in a recent live webcast focused on the Meyers Research & Metrostudy 2019 Consumer Sentiment Survey of more than 20,000 new-home shoppers. “Existing home sales are a little down year over year from 2018 to 2017, but we also had a tremendous 2017.”
Her take on the U.S. economy shows a recovery with no indication of stopping. “The good news is we’re about five months away from the strongest recovery ever,” said Carmichael. “We’re looking at another year or two of strength. Consumer spending for the most part is very strong, which is usually a lagging indicator.”
Despite these positive indications, many forces could put a drag on the economy and home building this year, including interest rates, tariffs, the labor shortage, and trade wars. Here is a roundup of Carmichael’s economic and consumer trends to watch:
Affordability. In many big markets, tight housing inventory is forcing prices up and buyers out. “When we look at months of supply, it’s anemic. It’s very low, and that’s part of the problem, that lack of choices out there,” says Carmichael. “Low supply is pushing prices up. But we do have some markets that have not hit peak pricing so there’s still some opportunity out there,” she says.
Southern California currently is the least affordable place to live while the Southeast and Idaho rank high for affordability. “We need price points below $500,000,” she says. “Focusing on that is a huge part of 2019 to 2020.”
Carmichael also sees choke points in hot real estate markets that are dealing with an influx of residents and not enough housing. “Most of the growth is heading into the West and that’s great. When we look at where affordability is, that’s where it’s not so great,” she says. “That’s where affordability is most challenged.”
Size Matters. The survey revealed the continued growth of multigenerational households and a shift toward smaller floor plans. “The most important home features are interior styling and curb appeal–it’s not about size,” says Carmichael. “We have to get better at design to get to the price point that consumers want. We have to be better at figuring out how to get that 1,500 square feet to feel like 2,000 square feet, and 2,500 square feet to feel like 3,000 square feet.”
Purchasing Power. Carmichael noted that women are the dominant force in today’s home-buying world. Recent numbers show that they represent 51% of the nation’s wealth. One in five homes today is owned by a single woman, and 92% of all home sales are led by women, according to Carmichael, who says of a hypothetical female buyer: “She is focused on how the home lives for her and her family.”
Mortgage Rates. Carmichael believes concerns about rising mortgage rates may be overblown. “We’ve seen so much elasticity, over the past few years rates go up but then they just come down,” she says.
While noting that just a 1% interest rate increase equates to 12% in lost affordability, she points out that mortgage applications were up in January. “We think interest rates are going to stay low through the spring selling season, so that’s good news,” she says.
Unemployment. The country’s ultra-low unemployment rate continues to be a bright spot. “Employees aren’t afraid of losing their jobs,” she says, “so they’re feeling very confident about their employment.”
High Prices. To get an artificial intelligence-based take on consumer sentiment, study leaders fed data from the survey to IBM’s Watson computer system. When Watson was asked to refine what most people said about the main reason for not buying homes the answer was, “the market is just too high.” When the machine was asked to collate the most popular responses for buying a home, the answer was, “If you can afford it, do it.”