As we come close to the end of 2018, many home buyers are starting to look ahead to next year. And they all have one question in common: How will the real estate market behave in 2019? Are home prices still going to keep rising, or will they level off, or drop? Will we see yet another sellers’ market in 2019?
Here are five key points to keep in mind regarding the housing market next year.
- New-home construction may increase.
There has been a recent uptick in building permits nationwide. This means there is a high likelihood that they could lead to a much-needed increase in new-home construction in 2019.
Earlier in the year, the National Association of Home Builders stated: “Over the first four months of 2018, the total number of single-family permits issued nationwide reached 279,302. On a year-over-year basis, this is an 8.4% increase over the April 2017 level of 257,719.”
However, there is generally a long lag time between the filing of a construction permit and the completion of a home project. There is still a high possibility that in 2019 we may yet again see inventory shortages, with fewer homes listed for sale to satisfy demand from buyers.
- Most markets will still favor sellers over buyers.
Inventory shortages across the country affected most housing markets in 2017 and 2018. And the likelihood of it continuing into 2019 is still high. An imbalanced supply-and-demand system will continue to put upward pressure on home prices in 2019.
Though this trend does not affect every market and can vary from one area to another, the general inventory pressure is being felt in almost all markets. Some markets are more “balanced” than others, with enough supply to meet demand. The tightest markets are along the west coast — from Washington and Oregon to California. But nearly every state is feeling the inventory shortage.
- Mortgage rates could stay stable at 5%, for a 30-year loan in 2019.
We started 2018 with the average 30-year fixed mortgage rate at 3.95%. And by November 8, that average had gone up to 4.94%, based on long-running research done by Freddie Mac. This means that today’s rates are almost one full percent higher than they were at the beginning of this year.
The Feds recently have eased some of the stress by emphasizing that they don’t plan to increase interest rates as fast as initially predicted by some. Many experts and analysts are predicting now that they expect 30-year loan rates to hover around 5% for much of 2019.
The economic research team at Freddie Mac in their October 2018 report stated:
“We anticipate that the 30-year fixed-rate mortgage will average 4.5 percent in 2018, rising to 5.1 percent in 2019 and 5.6 percent in 2020.”
The key takeaway: there appears to be some consensus among experts that mortgage rates will remain relatively stable at around 5% throughout 2019.
- Refinancing activity will decline, and purchase loans will start to dominate the market.
Whenever mortgage rates start to rise, we generally see a decline in refinancing activities. And 2018 was the first year in many that saw the steady rise in rates. As a result of this increase in rates, we expect the mortgage market in 2019 will likely be dominated by buyers of homes (purchase loans). And mortgage refinancing activity will likely decline in 2019.
The analytics firm Black Knight recently put out a press release that said approximately 1.9 million homeowners across the country still “have an interest rate incentive to refinance” their homes. But the window has closed for many more. The company’s data revealed that roughly 6.5 million homeowners “have now missed their opportunity to refinance their mortgages due to rising rates.”
The key takeaway: Few homeowners could still benefit from refinancing but the majority won’t. In 2019, the mortgage market will likely be dominated by home purchase loans, and only a smaller percentage of current homeowners will likely refinance their loans.
- Mortgage lending standards will be more relaxed, drawing more first-time home buyers.
First-time home buyer, many of them millennials, are returning to the market after several years on the sidelines due to previously weak job growth and restrictive mortgage standards. Tight mortgage-qualification standards for years have kept first-time and entry-level buyers out of the market.
Mortgage lending criteria have become less stringent over the past year. This will have an impact on the 2019 mortgage market. It has become easier to qualify for a home loan today, compared to previous years. Freddie Mac and Fannie Mae have relaxed some of the criteria they use when purchasing mortgage loans from lenders. For example, they are allowing higher debt-to-income ratios and higher loan-to-value ratios. In other words, borrowers can qualify for a mortgage loan with a higher level of household debt, and with less money down.
National Association of Realtors (NAR) and Federal Housing Administration (FHA) have reported signs of a slight increase in purchases by first-time buyers of late.
Keep these five points in mind if you plan to buy or sell a house.
For more in-depth information about the market, please contact me.