A shortage of affordable listings combined with rising interest rates will continue to give mid and entry-level buyers a heavy one-two punch that will worsen as the market moves through 2019. While the shortage of lower priced inventory affects only buyers, rising rates affect buyers and sellers equally—sellers at a price a buyer can afford. Those planning to move this coming year would be wise to consider acting sooner rather than waiting.
Since 2011, rising prices have been pushing what were entry and mid-level homes up into higher price ranges faster than incomes of entry and mid-level buyers have risen. At the same time, builders and developers who had taken a beating during the recession focused on building upper-end properties because the bigger projects were more profitable.
The combination of rising prices and a lack of lower- end development has created a shortage of affordable entry-level homes while the upper-end markets have been expanding. In the Southeast Michigan region, there were 3,000 fewer closed sales priced under $250k this year compared to last, while the number of over-$250k sales increased by 600.
Prices in the middle and entry-level markets will continue to rise. As they do, quality homes priced under $250k will become even harder to find.
In the last 15 months, interest rates have increased from 3.5% to roughly 5%. In that short time, the principal and interest payment on a $200k home would have increased from $898 to $1,074 ($176/ month). That’s a 20% increase in cost based on just a 1.5% increase in interest.
Rates continue to be remarkably low when viewed from a historic perspective, but they are more likely to rise than drop in the foreseeable future. Forecasts have them at 5.5% in the later months of 2019.
While rate increases will adversely affect both buyers and sellers in all price ranges, as time passes it will become increasingly harder to find affordable move-in- ready homes priced under $250k. Buyers and sellers planning to make a move this year should get an early start. This is especially relevant for buyers in lower and medium price ranges.