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The Journal Gazette

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Wednesday, January 02, 2019 1:00 am

Seller's market for housing in '19

Affordability, availability seen as challenges


Tyler Kees, 2019 president of the Home Builders Association of Fort Wayne, has two words for his outlook on the local housing market: “Cautiously optimistic.”

Kees works for Quality Crafted Homes. The small, custom-home builder is coming off “the largest year our company has ever had,” Kees said. He hopes the trend continues.

“2019 probably looks more like a typical year, whatever that means now,” he said, referring to the industry's many adjustments after the housing meltdown of a decade ago. “But that could change after the first quarter.”

Other local and national experts also say the housing market looks both encouraging and a bit shaky.

The Allen County Building Department on Dec. 4, for example, announced that more than $1 billion in new building permits were issued in 2018 – for a record-setting second straight year.

But the number of residential permits issued through Nov. 21 was down from 2017's year-end figures, while the dollar figure for those permits was up.

That likely means the fewer houses being built are generally costing more, John Caywood, building department director, said in an interview following the announcement.

At that time, the dollar value of residential permits already had exceeded the total for all of 2017 by more than $28 million, or about 7 percent.

That could mean a widening of the affordability gap, although the Fort Wayne-area market remains among the most affordable in the state and even the nation, local real estate experts said.

In October, homes were at their least affordable point in 14 years, becoming only slightly more affordable in November, the last month for which statistics were available from the Fort Wayne-based Upstate Alliance of Realtors, also known as Upstar.

The area's median family income was a little more than double what was needed to buy a median-priced home in 2017. For 2018, the figure was only 70 percent.

One major trend likely to continue, said Century 21 Bradley Realtor Mary Mauger, is a low number of homes up for sale.

Available homes shrank by 11.7 percent to 1,368 at the end of November, or just under a two months' supply, up slightly from the lowest point in more than 13 years in April, typically the heart of the selling season.

“It was definitely a sellers' market this year because, with the lack of houses, the prices went up because of supply and demand,” said Mauger, who was president of Upstar during 2018.

In a sellers' market, sellers have the upper hand because there are more buyers than available homes. A balanced market, when neither party has an advantage, typically begins with a five months' supply of available homes; more than that is considered a buyers' market.

Allen County's median 2018 home price through November rose to $143,900, up $10,000 from the same period last year. Half of all homes sell above the median and half sell below.

That's off slightly from record territory in June and July, when the median reached $150,000. The previous record, in 2016, was around $120,000. Before then, the median ranged around $100,000.

The statistics reflect the price of both new and existing homes, and the increase may be occurring because of rising prices of new homes, Mauger said.

Meanwhile, the National Association of Realtors reported that the number of sales of previously owned U.S. homes through the end of October registered the largest annual drop in more than seven years.

The national group said some buyers nationally are likely to continue to have challenges as a shortage of homes with rising prices collides with mortgage interest rates that may reach 5 percent or more for a 30-year fixed-rate conventional loan by the end of 2019.

Officials with the National Association of Home Builders cautioned that 2019 may bring a slower new-construction market.

Housing starts were up 3.2 percent nationally in November and up 5.1 percent year to date, according to the association, based on federal data. But the building of single-family homes dropped 4.2 percent in November for the third straight month, while multifamily units – apartments and condos – went up 22.4 percent.

That trend can be seen locally in the number of recently proposed, built or opened apartment complexes downtown and in suburban Allen County. The projects include Cityscape Flats, Superior Lofts, HIVE and Bonterra.

“While home ownership has increased over the last nine quarters, we can expect that upward momentum to stop due to rising home costs,” Robert Dietz, chief economist with the Home Builders, said in a news release. “Because housing leads the economy, we need to stabilize residential market conditions.”

The news release said home builders are acting cautiously, despite good demographics for prospective buyers and generally good economic conditions including low unemployment, because too many houses remain unaffordable for buyers.

Kees said new home builders don't see an increase in the prices of previously owned homes as a bad thing. Rising prices of those homes narrow the gap between the cost of them and the cost of new homes.

“It makes new homes more of an option,” he said.

But his enthusiasm is tempered with the realities of a skilled labor shortage in the construction trades that eventually may mean higher wages. There is also uncertainty about cost increases from suppliers, including aluminum and lumber, which may be affected by international trade issues, he said.

Locally, he added, “There are challenges with finding places to go with building,” as open ground diminishes and available lots become smaller and more costly.

Mauger, meanwhile, sees interest rates for home mortgages remaining low as key to the new year's conditions.

Even if rates increase by 1 percentage point by the end of 2019, “Fort Wayne is such an affordable market. ... I don't think interest rates will hurt our market as much as in California or New York, where affordability is such an issue,” she said.

Mauger expects more people who buy existing homes to take advantage of assumable mortgages at lower rates to blunt the effect of higher mortgage rates and higher home prices.

But when older residents confront recent stock market losses, they may decide to stay where they are and remodel instead of downsizing to a smaller, more costly newly constructed home, Mauger said.

“I think we'll see another good year,” she said. “You'll always have people needing homes. ...There's just a lot of variables in this business.”