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As 2018 Ends, Conflicting Trends Emerge in US Housing Market

By Corazon Gritar

According to a recent article from The Washington Post, homebuyers have enjoyed a drop in mortgage rates over the last several weeks. However, though interest rates have indeed dropped to two-month lows for some loan types, rates still remain higher than they were a year ago. Overall, some experts believe the real estate market rests at a crossroads and could either experience a boom or stagnation in the coming months.

Over half (59%) of homeowners wish they understood the details of their mortgage better. Well, different common types of mortgages have all experienced lower rates this week. In general, fixed rate mortgages can come with varying loan terms. The most common fixed rate loans are a 30-year fixed or a 15-year fixed loan.

During the week of December 10, the 30-year fixed-rate average dropped to a two-month low of 4.75%. This marks a significant drop over the period of a week– around December 3, interest rates were at about 4.81% for 30-year mortgages. A year ago, however, this rate was considerably lower, and hovered around 3.94%.

Additionally, The Washington Post reported a similar drop in rates for 15-year fixed rate mortgages, from 4.25% in early December to 4.21% at the time of reporting.

These drops may be attributed to fluctuations in the overall stock market, according to Bizjournals.com.

The drop in rates has provided some relief to home buyers, who in recent months have faced rising home prices and interest rates. As 2018 closes, many predict the home-buying market will strengthen and remain strong. A lower average selling price, from $313,000 to $298,000, might also indicate that the market has become less prohibitive to first-time buyers.

However, earlier reports from 2018 suggest that while the real estate scene might be doing fairly well, other related industries could suffer through the end of this year. In particular, the new home construction market has faced challenges in recent months.

According to Forbes, the housing construction market was “ripe for disruption” throughout this autumn. Writer John McManus notes the construction industry has seen an aging workforce, with fewer and fewer young people joining the ranks. As immigration laws continue to restrict incoming labor force, the construction industry could face an even greater employment-demand gap moving forward.

Other factors have also contributed to a possible stagnation in the housing construction industry. McManus claims that current standards for home construction rely on century-old methods and tools. Combined with industry barriers for entry like high material prices and ever-changing building codes, the residential construction industry might be on the decline.

Ultimately, the “four horsemen” of the housing construction industry (building materials, labor, land, and capital) have been working in tandem to strain the industry’s ability to build homes affordably.

While the housing market may be enjoying temporary relief in terms of interest rates, these long-term construction trends prevent this drop from continuing through 2019.

However, Forbes notes that the housing construction industry is currently poised for revolution. If builders and buyers alike embrace new innovative techniques, the housing market may transform and become more affordable.

One possible transformation in the coming years may lie in rising demands for smart buildings. According to the Security Industry Association, the global market for smart buildings will rise from $8.5 billion in 2016 to $58 billion in 2023, with an annual growth rate of 31.5%.

While the future of any industry is difficult to predict, long-term trends indicate that the housing market is currently at a fork in the road. If financial experts and innovators in the construction industry work together, home buyers just might be able to experience a new era of housing availability and affordability in 2019.

Photo Credit: stock photo

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