Housing and Mortgage Trends in 2019
Most analysts predict that 2019 should be a difficult year for home buyers in particular and the housing market, in general. But there are definitely silver linings in the forecasts.
Mortgage rates will continue to rise according to an article in Forbes on December 18th, 2018 (2019 Real Estate Forecast). Although rates are lower than they’ve been historically, they have been rising this year, will probably keep increasing. “The 30-year fixed mortgage rate [will] reach 5.8% - territory not reached since the dark days of 2008 when rates were racing downward in response to the housing crisis.”
The analysts at Yahoo finance concur in an article released on the same date: “From the beginning of 2018, to mid-December 30-year fixed mortgage rates went up about … three-quarters of a percentage point … forecasters expect mortgage rates to continue to rise again in 2019 – but at a slower pace.” In this regard, The National Association of Realtors predicts a 0.4% rise in 2019.
But at the same time, many lenders are easing requirements, making it easier to qualify for a loan. So, it will be interesting to see whether the impact of rising rates is mitigated by the greater ability of more folks to obtain a mortgage.
But beyond the mortgage rates and lending forecasts, what can we expect in the home buying market, in general? Well, it’s a mixed story.
As interest rates rise, less buyers will enter the market, as affordability becomes an issue. But the fact that there will likely be less buyers, should serve to lower home prices, as sellers compete for the smaller market.
Additionally, Forbes predicts that in 2019 home buyers will be met by higher inventory levels in some markets, which could translate to price easing in these regions. But in many other markets demand will remain strong, which would serve to keep prices high, even with the extra inventory. Contributing to this, is the analysts’ belief that buyers will feel pressured to act quicker because of a fear that mortgage rates will continue rise even further. Overall, this mixed picture probably means that prices should rise, but at a considerably slower rate than in recent years.
“Home price appreciation will slow down – the days of easy price gains are coming to an end – but prices will continue to rise,” according to Lawrence Yun, chief economist for the National Association of Realtors (NAR). Home prices will rise just 2.5% in 2019, compared with a 4.7% rise in 2018, says the NAR.
An additional factor contributing to the lower price increases in the housing market in late 2018 which is likely to continue in 2019 is the decrease in foreign buyers. “A recent drop in foreign purchases hurt markets in Florida, California, Seattle, and New York. Those buyers, who have been put off by higher prices and increasing global tensions show little sign of coming back”, according to the December 24th issue of the Wall Street Journal, (Home Slump Seen Lasting).
Another likely outcome of the predicted market conditions is that home buyers (especially first-timers), will seek out smaller homes which would result in lower monthly mortgage payments. There is already evidence of this. … “New single-family home size decreased during the third-quarter of 2018,” says Robert Dietz, chief economist for the National Association of Home Builders. The census bureau reports that the median size of new homes has fallen 4.9% compared to the median size of homes built in the three years prior.
In summary, while the picture is mixed, the market may marginally favor sellers. But those sellers should not be too confident - the bidding wars that characterized recent years are likely a thing of the past. As Danielle Hale, chief economist at Realtor.com observes, “… [Sellers] are going to have to price competitively and offer incentives to buyers.”
If I could be of any help in clarifying the complexity and competing forces outlined above in the expected near-term market conditions, please don’t hesitate to contact me at Downing Frye Realty.
Have a healthy and prosperous new year.