After nearly two years of continuous projected year-over-year increases in nationwide residential real estate appreciation, we predict that properties in the largest 100 markets will appreciate at just 3.9% in the coming year – a half-percent drop from the previous quarter's forecast of 4.6%.
While this is a significant change from one quarter to the next, I do not see it as a sign that a crash is coming. The market fundamentals are expected to remain solid and the overall housing market remains healthy. This is simply part of a slowing down as the strength of the past few years dissipates somewhat in most markets.
This projection is based on the VeroFORECAST, which analyzes data from 359 Metropolitan Statistical Areas that include 13,870 zip codes and 1,004 counties, representing 82% of U.S. residences.
Perhaps the biggest surprise in this softening is what is projected to happen during 2019 in the West.
Although western MSAs continue to dominate the report's list of the 10 markets projected to appreciate the most over the next year, all four MSAs in Nevada and California that were in the last report's top 10 have dropped out.
The other characteristic of those top 10 markets is that only one is among the 100 largest MSAs in the report, and that one is Boise City-Nampa, Idaho, which sits atop the list with a projected 9.5% appreciation.
It has moved up from the second-highest projected 12-month appreciation in our last quarter after Bremerton, Washington, also dropped out of the top 10. In fact, the top and bottom 10 are now dominated by small- to modest-sized cities, with average populations of 260,000.
Also rising in the rankings are other Idaho markets. The state with the much-appreciated potatoes is clearly one with much-appreciating property. It now holds three spots in the current forecast's top 10.
Here is our list of the top 10 cities expected to appreciate the most in 2019. We forecast that, together these 10 will have average appreciation of 8.3%, which is down from 10.3% one quarter ago.
- Boise City-Nampa, ID MSA……………………………………………… 9.5%
- Olympia, WA MSA………………………………………………………….. 8.8%
- Midland, TX MSA……………………………………………………………. 8.7%
- Idaho Falls, ID MSA………………………………………………………… 8.6%
- Odessa, TX MSA……………………………………………………………. 8.4%
- Pocatello, ID MSA…………………………………………………………… 8.2%
- Bellingham, WA MSA………………………………………………………. 8.2%
- Mount Vernon-Anacortes, WA MSA…………………………………… 7.8%
- Boulder, CO MSA……………………………………………………………. 7.7%
- Grand Junction, CO MSA…………………………………………………. 7.5%
Turning back to California, the markets representing the Southern California counties of Los Angeles, Ventura, Orange, Riverside, and San Diego are forecast to appreciate less than 5% over the next year, a considerable drop in projected appreciation.
San Francisco-Oakland-Fremont, the one California market among the previous 10 MSAs predicted to appreciate the most, has dropped from a 9.6% rate a quarter ago, to 7.2% in this report. Likewise, the Los Angeles-Long Beach-Santa Ana MSA has slipped.
Last quarter's projections showed it had a projected appreciation rate of 6.7% for single-family residences and slightly higher for condos and townhouses. That was comfortably above the 4.6% average of the largest 100 markets. This quarter we are forecasting that, on average, its single-family residences will appreciate just 4.5%.
Other areas that will be appreciating at lower rates are the previous hotspots of Denver, Las Vegas, Reno, and Dallas, with Manhattan and its surrounding New York market forecast to appreciate at just one percent through Dec. 1, 2019. There are also lower predictions for Salt Lake City and the rest of the state of Utah.
As further indication of the softening real estate market nationwide the number of depreciating markets has increased from 3% to 5% since last quarter's update. There are now 18 markets, twice as many as in the third-quarter 2018 report, that are predicted to depreciate over the course of 2019.
The projected range for depreciation in those bottom 10 markets is -2.6% to -0.4%, for an average of -0.92% compared with the last report's comparable average of -0.58% depreciation.
While the economy remains strong and nationwide unemployment is continuing to drop, it is the increasing housing supply and rising interest rates that are now key contributors to the softening of the market.
In fact, interest rates appear to be softening the forecasts in many markets by 1-2% over what they would have been had the flat interest rate environment continued as it has for the past several years.
