Boca Raton and Palm Beach County Real Estate Market Update - February 2019
Housing Market Headwinds as Mortgage Rates Drop
So this month, Grant and I wanted to revisit some of the macro-economic warning signals that we discussed in last month’s video now that the Federal Reserve have given us some additional guidance for the remainder of 2019.
First off – What did the Federal Reserve Say? Well, they definitely seem to be backtracking on interest rate increases now that they have acknowledged that the economic slowdown is sharper than they had anticipated. At the same time, while they stressed no interest rate hikes in 2019, they did announce that they anticipate at least one increase in 2020. So what was the impact? Mortgage rates dropped sharply to last week’s average 30-year fixed rate mortgage of 4.44% - great for those looking to either buy or refinance!
Worryingly However, Consider the Following:
The Palm Beach County housing numbers in February were woeful, although not nearly as bad as January’s. Specifically: closed sales, median prices, cash sales and listing prices-to-final sales-prices were all down sharply from the same month a year ago. At the same time, inventory levels and the number of days to get a contract were both significantly higher. Translation = More Supply, Less Demand.
There is yet more evidence the consumer is tapped out. Deutsche Bank wrote a report detailing signs that the average U.S. household is running up against its willingness and ability to assume more debt and monthly interest expense. So, while mortgage rates may have dropped, interest rates on auto loans and and credit cards is increasing sharply.
In fact, total consumer debt broke another record in January, according to the latest report by the Federal Reserve with overall consumer borrowing rising to a new $4.03 trillion record! The consumer debt figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt.
Interestingly, US new home sales data (down 7%) with builder sentiment and buyer traffic through new models are both low. Given the rising cost pressures builders are facing, this could suggest continued difficulty for new homes and new construction ahead.
Finally, consider this: Last year housing was 6% of our nation’s GDP (Gross Domestic Product) and going down, NOW, housing is 3.5% of GDP and going up – that is a significant change in the overall housing market in a very short period of time.
So clearly the housing market is facing some headwinds and some significant downward pressure in the marketplace:
Consider these 3 important factors:
- We have definitely reached the top of Real Estate Cycle 2008-2018. (NOTE: Each Real Estate Cycle is 7-10 years). So it makes sense that we are starting our downward leg.
- We’ve reached the top of Debt Cycle. 4 interest rate increases in 2018 (9 in all by the Federal Reserve), have now created headwinds with consumers highly leveraged. NOTE: Every 1% increase to the mortgage rate impacts buying power by 10%, and less qualified people equals less buyers.
- Buyers have Price Fatigue. Property values have increased more than 40%+ since 2008, yet wages have simply not kept pace. Something has to give, either people get paid more or prices have to come down....which do you think is more likely?
Looking Ahead For the Rest of 2019 As it Relates To Housing:
We can certainly extrapolate some themes here:
First - The average household’s cost to service debt has reached a point at which it will become more difficult and challenging to find buyers who can qualify for a conventional mortgage (FNM, FRE, FHA).
Second - Housing affordability issues will continue to be a theme going forward.
Third – Inventory will continue to Increase, prices will soften and properties will likely sit on the market for extended periods of time.
Finally – The effects of the worldwide economic slowdown will be felt here in the USA throughout 2019 and into 2020 and will have a knock-on impact for the housing market.
Going forward we will definitely be keeping a continued close watch on prices, interest rates, inventory levels and the number of closed sales.
Here is a quick video going into more depth of current economic indicators:
Review the Palm Beach County Market Statistics for February in Detail Here:
The Palm Beach County market statistics are courtesy of your REALTOR®, a proud member of the Realtors® Association of the Palm Beaches (RAPB). RAPB represents over 14,000 members involved in all aspects of residential and commercial real estate.