27-Dec-18 – Despite December’s stock market volatility and President Donald Trump’s battle with the Federal Reserve Board over its interest rate policy, there is a bright outlook for home buying in 2019.

“The Fed is like a powerful golfer who can’t score because he has no touch – he can’t putt,” Trump tweeted. Following Trump’s Christmas Eve attack on the Fed for raising interest rates, the Dow Jones Industrial Average fell 653 points.

Then on December 26, the Dow catapulted upward a record 1,086 points – percentage-wise, the best daily stock market gain since March 2009. So, perhaps the Santa Claus stock market rally already is underway this year.

Before the rebound, analysts gloomily predicted the stock market could end 2018 with the worst December since 1931, the heart of the Great Depression. However, the outlook for home and condominium buying couldn’t be brighter for 2019.

On Christmas Eve, the interest rate on 10-year Treasury bonds fell to 2.74 percent. After the stock market rally, the 10-year bond average rose slightly to 2.81 percent. On November 6, the bond average skyrocketed as high as 3.22 percent.

Since lenders peg their 30-year fixed rate mortgages to movement of 10-year Treasuries, experts predict benchmark home loan interest rates could remain in a lower range into early 2019.

On December 27, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed mortgages nationwide averaged 4.55 percent, down from 4.62 percent a week earlier. A year ago, the 30-year fixed loans averaged 3.99 percent.

“Rates continued their two-month slide and are currently hovering around the same level as the early summer, which was before the deterioration in home sales,” noted Sam Khater (left), Freddie Mac’s chief economist. “The negative headlines around the financial markets are concerning, but the economy remains healthy, so the decline in mortgage rates should stem or even reverse the slide in home sales that occurred during the second half of 2018.”

Khater says the modest rebound in sales in October and November indicates that home buyers are sensitive to mortgage rate changes.

“Given the further drop in rates we’ve seen this month, we expect to see a modest rebound in home sales as well,” he said.

Shortage of affordable listings slows home sales

Home sales activity in the Metro Chicago area slowed slightly in November, due largely to continuing weakness in the entry-level segment, reported RE/MAX of Northern Illinois.

November sales totaled 7,927 units, down 1.3 percent from the same month last year. However, sales of homes selling for less than $300,000 fell 5.8 percent, while all other sales rose by 7 percent.

Chicago posted total sales of 1,813 units in November, down 6.4 percent from the same month a year ago. Detached homes accounted for 812 of the units sold, while 1,001 condominiums, townhomes, and co-operative apartments were sold.

“When seen in historic context, metro Chicago November sales were excellent,” said Jeff LaGrange (right), Region Vice President of five RE/MAX regions including Northern Illinois. “November 2017 sales were the highest for that month since 2005, the housing boom peak. So, the slight decline this year isn’t a huge concern.”

LaGrange sees two factors restraining entry-level sales activity.

“The first is listing shortage. There is currently only a 2.9-month supply of homes for sale priced under $300,000. That compares to a nearly six-month supply in the rest of the market,” he said. “Looking more closely, the real imbalance between supply and demand is for entry-level attached homes, with just a 2.8-month supply on hand at prices under $300,000.”

The shortage of entry-level units, says LaGrange, particularly impacts Millennials.

Affordability is also a factor because entry-level buyers, he says, usually lack a substantial financial cushion.

“They are especially sensitive to things like rising interest rates and increased property taxes, both of which are affecting the Chicago market this year,” LaGrange noted.

Home values increasing moderately

Housing values are rising but at a moderate pace, with the median sales price for November up just 4.4 percent over the prior November, RE/MAX reported. LaGrange says the Chicago-area housing market has been “remarkably” steady this year, buoyed by positive trends in job creation and growth in the Gross Domestic Product, the market value of all goods and services produced.

Sales data used by RE/MAX is collected by Midwest Real Estate Data LLC, the regional multiple listing service. It covers detached and attached homes in the Illinois counties of Cook, DuPage, Kane, Kendall, Lake, McHenry, and Will.