What To Expect In 2019: Volatility

By Oren Jacobson, Market Analyst - New Home Star//

What we’ve been warning about for some time in this ongoing economic column for the Star Report is now officially the mainstream position of most major economists. With that, fears of a recession are growing despite some mixed signals in economic data, such as a very strong month of employment gains in December. Will there be a recession in 2019? My short answer is probably not. At least not in the first half of the year which tends to be a prime selling season in the real estate industry; giving us all a little more peace of mind.

2019 will be a year of uncertainty and turmoil, though. The stock market is likely to keep moving up and down in the wild swings we saw at the end of 2018. The political conditions domestically are likely to only get more chaotic. All signs point to 2019 being a year of economic volatility. Yet, volatility does not necessarily mean a recession. It just means uncertainty and variable swings in the big indicators.

It is pretty clear that House Democrats and President Trump are not going to be working together proactively any time soon. The Mueller investigation will continue to place immense pressure on the President. He has already started publicly criticizing the FED chairman, and we’re in an ongoing trade war with China, that may or may not get resolved this quarter. The combination of these events, plus inflationary pressure and overall weakening economic data around the globe result in a mixture that could ultimately tip over to a recession. Slowdowns on top of uncertainty, added with volatility almost always do. Most economists, though, are pointing to late 2019 or 2020.

However, we’ve drawn attention in past articles to the structural problems in the housing market. Those problems remain and are only likely to get worse with supply side challenges driving pricing up beyond the actual perceived value of the new construction. When combined with higher interest rates, affordability is down which has already impacted demand. Consequently, it’s highly likely that this year’s selling season will underperform last year’s. Housing, specifically new housing, is not as affordable as it needs to be to capture the demand that does exist at the levels most builders will want.

First time buyers, and younger, less affluent families will have a hard time being able to afford or justify price premiums in newer construction, especially at the lower end of the market. Move up buyers and empty nesters, who are likely to have better financial situations, are more likely to be willing and able to pay that premium. However, the competition in the new construction market is stiff for these two buyers as everyone is competing for them.

What does all this mean for you? First, if you don’t have a strategy to compete for first-time buyers and less affluent young families, meeting your volume goals will be difficult in 2019 and beyond. Second, you need to aggressively question every inclusion in your homes, especially those behind the walls, and ask whether or not your customers actually value this. Meaning, if you priced it as an option would they take it at least half the time? If not, you need to consider removing the unvalued cost that is pushing your price up beyond what the market will bear. Third, you need to double down on your investment into your sales team.

The front line staff that works the closest with your customers needs to be developed, trained, supported and listened to more. Dismiss their feedback at your own risk. Forget to prioritize training at your own risk. Ignore top-line revenue strategies at your own risk. The market is about to turn. Maybe not in the next six months and maybe not in 2019, but soon.

When it does, we will find out two hard truths. First, your product may not be aligned with your consumer and what they value. Second, your sales team may or may not be capable of driving incremental performance above and beyond the market, which could result in you overpaying for average results. If you’re not confident about what these truths could reveal now, it is time to reach out to New Home Star.