2019 housing market outlook

A mere blink of an eye and we’ve already ushered in the new year. A year ago, I had predicted that the housing market will continue to grow in 2018 and that the growth rate will be stronger in the first half of the year—overall, my predictions were on the right track. Home prices peaked in August and increased by 15% compared to 2017, which is lower than my expectation of 20%. The main things I failed to anticipate were the US-China trade war and the sudden housing market cool down that took place in late 2018. Stepping into 2019, I have four major predictions to make:

The US and China will reach trade agreement

The two countries are currently negotiating a trade agreement, and the verdict—expected to be announced in March—will have a major impact on the housing market. If the negotiation falls apart, the economy will look even bleaker with investors rushing to cash out. However, it is worth remembering that in the new year, Trump will be facing challenges from the now Democrats-controlled House of Representatives and the investigation into his Russian collusion. Although impeachment seems unlikely, Trump will need something to show for in order to keep approval ratings up, and prolonged trade tensions with China will certainly hurt American farmers—a key component to his base. Thus, the longer the trade war drags on, the more support Trump is going to lose. It is my guess that the US and China will reach a deal before March, and Trump will declare himself victorious and gain political capital.

Cooling measures will stay

There have been a number of recent home sales where sellers slashed prices. However, given that the home price index tends to lag behind real-time market performances, I believe the index will only take a slight dip no larger than 5% before March. After all, the market only declined by 10% in the second half of 2018, so it’s safe to assume that cooling measures are here to stay. Additionally, if the US and China do resolve their trade conflicts, it will lift a considerable amount of downturn pressure from the housing market, and the government will have less incentive to remove the cooling measures.

Interest rate hikes will slow down

The Federal Reserve just raised interest rates by a quarter of a percentage point despite pressure from Trump. But I think coming into the new year, the Fed will gradually slow down the pace of rate hikes and may even put a temporary stop on them. The chances of rate increases in Hong Kong will be even slimmer.

Home prices will continue to go down before bouncing back

Home prices will continue to be plagued by negative factors in the first half of 2019, and decrease approximately 10% by my estimation. Afterwards, a rate hike stall and other favourable factors are likely to boost prices back up by 10% as well. So overall, we can expect a rather stable market this year.

On the other hand, increased discounts in the Home Ownership Scheme and the introduction of a new scheme geared towards first-time home buyers have taken many buyers away 
from the private market, particularly in the nano flat sector. Facing stagnant sales, developers will be forced to slash prices on small units, which will be good news for first-time buyers.