Despite choppy data on the housing market over the last few months, Nationwide Chief Economist David Berson says 2019 will outperform 2018.
“Economic figures from early in the year were probably negatively affected by the government shutdown as well as the impacts of higher interest rates over the second half of last year,” said Berson, who was Fannie Mae’s chief economist for two decades. “Despite that, we believe that the housing market is poised for another solid year as slower house price growth and lower mortgage rates help affordability, while job gains and faster income growth sustain demand.”
Nationwide’s Leading Index of Healthy Housing Markets is at its highest point in three years, Berson said this week. Solid job growth, rising wages and strong household formations are driving the positive outlook, he said. The LIHHM is a rarity among housing market indices: It’s a forward-looking measure.
Through the first quarter of 2019, more than half of the LIHHM’s 221 regions showed a positive outlook, and only 27 were negative. By comparison, only nine LIHHM regional performance rankings were positive at the end of 2005 – just before the last housing crisis – and 255 were negative.
The 10 metro areas with the most positive LIHHM forecasts for 2019 are, in order: Sumter, South Carolina; Sebastian-Vero Beach, Florida; Charleston, West Virginia; Hinesville, Georgia; Abilene, Texas; Vineland-Bridgeton, New Jersey; Port St. Lucie, Florida; Montgomery County, Pennsylvania; Springfield, Massachusetts; and Pittsfield, Massachusetts.
The 10 MSAs with the least positive LIHHM outlooks are: Kennewick-Richland, Washington; Pueblo, Colorado; Yakima, Washington; San Jose, California; Chico, California; Manhattan, Kansas; Ames, Iowa; Ogden-Clearfield, Utah; San Rafael, California; and Odessa, Texas.
“There are three factors that have historically driven movements in home sales: population growth, job gains, and affordability,” Berson said in the report.
He said: “Changes in population tend to influence longer-term sales trends more than year-to-year changes. While job gains did slow in a few of the states with contracting sales, there was still positive payroll growth on average — likely meaning that this was a minor factor in reduced sales activity. That leaves affordability as the primary factor that caused sales to decrease. Many of the states with the largest declines in existing sales also have the highest prices. Given already low affordability, these areas would be most sensitive to movements in rates and prices.”