The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

Tag: 2019 forecast

2019 Interest Rate and Housing Forecast – Sales and Appreciation

Now that 2019 is here, let’s take a look at what we can expect regarding interest rates and the housing market. 

Experts are predicting some interesting shifts moving into 2019, including continued home appreciation (although at a slower rate) and slight interest rate increases.

Let’s take a look at the key components that drive the real estate market….

2019 Geopolitical/Finance Dynamics

One important way to understand what lies ahead has to do with taking a look at world events and the other issues that drive the economy.  Here are a few things that will impact the market in 2019:

  • Trade issues with China
  • Possible economic slowdown, although early 2019 results have been positive
  • Late 2018 Stock Market pullback – Early 2019 Rally
  • The Federal Reserve – 2 planned hikes in 2019
  • Rates set to rise in year ahead – How much and what will the impact be?
  • Keeping an eye on inflation…watch oil prices and wage pressures
  • Continued stock market volatility?

The Federal Reserve

The Federal Reserve raised borrowing costs four times in 2018, ignoring a stock-market selloff and defying pressure from President Trump, while dialing back projections for interest rates and economic growth in 2019.

By trimming the number of rate hikes they foresee in 2019, to two from three, policymakers signaled they may soon pause their monetary tightening campaign. Officials had a median projection of one move in 2020.

The Federal Open Market Committee “will continue to monitor global economic and financial developments and assess their implications for the economic outlook,” the statement said.

Here are some things to watch in 2019:

  • Every meeting will have a press conference, making every meeting a live meeting, increasing speculation and volatility.
  • Federal Reserve “Dot Plot” shows 2 hikes in 2019
  • Inflation could rise with higher oil prices and wage pressures
  • Fed scheduled to reduce their balance sheet of mortgage-backed securities and treasury bonds by $50B per month

Prediction: Fed will hike 1 time to get the Fed Funds Rate (FFR) to 2.75%, although they would love to get the federal funds rate to 3% – and they will stay course on balance sheet reduction.

The pause in Fed rate hikes acts as important catalyst to turn the tide in favor of Stocks. 

Interest Rates

It’s not very often that major players across an industry agree, but on this point, almost everyone does.  Nearly all industry experts predict the 30-year mortgage will average above 5% for 2019.

Five percent used to be considered an ultra-low rate. But after years of rates in the 3s and 4s, it seems pretty steep.  Still, affordable home payments won’t be hard to find, even as we adjust to the new normal.

The National Association of Realtors (NAR) predicts 30-year fixed interest mortgage rates to average around 5.3 percent in 2019.

“The potential buyer who’s thinking if now is the right time to buy needs to do the math and determine what the impact of potential rising rates would be on their payment,” said Paul Bishop, the NAR’s VP of Research.

Here are some of the key factors for 2019:

  • Inflation is main driver of rates, and inflation should tick higher with oil prices rebounding and wages increasing.  Many states increasing minimum wages.
  • Fed will continue to allow $50B to roll off balance sheet and is no longer buying
  • US Government borrowing more in 2019, which will add supply to the market that will need to be absorbed
  • More supply and less demand = higher rates
  • Stock market increases will most likely hurt rates

Prediction: The 10-year Treasury Note will trade between 2.75% and 3.25% for most of the year.  High point for 10-year is estimated at 3.5%. Mortgage rates will fluctuate in the low-mid 5% range

30-year Fixed Mortgage Rates in the 5% to 5.5% range for most of the year

Housing

Most experts predict the fevered bidding wars and snap home-buying decisions won’t be as big of a factor in most markets. Slower and steadier will characterize next year’s housing market.

That follows a 2018 that started off hot but softened into the fall as buyers – put off by high prices and few choices – sat out rather than paid up.

Affordability issues will remain a top concern going into 2019, exacerbated by rising mortgage rates. But some of 2018’s more intractable issues will begin to loosen up. The volume of for-sale homes is expected to rise and diversify, while the number of buyers is forecast to shrink.

Below are a few of the factors to watch in 2019:

  • Negative media
  • Rocky beginning of the year
  • Stocks begin to stabilize positively
  • Spring market rebound
  • Demographics still favorable – More demand than supply

Prediction: 3.5% – 4% year-over year. Appreciation still creates significant wealth – and the media will get this wrong.

Sales and appreciation moderate slightly, but housing remains healthy, especially after Q1 for much of the US

Finally, more homes to choose from

One of the biggest complaints among buyers in the last several years is that there weren’t enough homes for sale. In fact, the supply of houses hit historic lows in the winter of 2017 and has yet to rebound substantially. That fueled bidding wars, price increases and frustration.

The supply crunch is expected to ease some in 2019 with inventory rising 10 percent to 15 percent, according to many experts. But the increase will be skewed toward the mid-to-high end of the market – houses priced $250,000 and higher – especially when it comes to newly built houses, said Danielle Hale, chief economist of realtor.com.

That’s good news for move-up buyers, but not so much for the first-time millennial buyer. “There’s still a mismatch on the entry-level side,” she said.

If you have more questions about 2019 – and are thinking of purchasing, don’t hesitate to reach out to me, as it would be my pleasure to help!

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

The question asked to me most often over the last few months is “is now a good time to buy?”

Many potential buyers are concerned about rising rates and property values. And yes – both are going up.

My answer to their question might surprise you – as I truly believe now is a great time to purchase real estate.

Purchasing Today – Why Now?

It was clearly more advantageous to purchase real estate last year, when looking through the rear view mirror.  But I’m convinced that purchasing today will be MUCH better than this time next year.

Why?  Well, for one, property values are increasing at over 5% per year, so that home you are looking at today will most likely be 4-5% more expensive next year.

Secondly, the Federal Reserve has signaled 3 to 4 more interest rate hikes over the next 15 months, the next most likely coming in December of this year.

So, let’s be clear about the fact that most experts agree that both prices and rates will most likely be higher next year versus today.

Why the shift?  Read on for more….

First: The Good News – and There’s Lots of It

Unemployment is at it’s lowest level since 1969.

“This is the best job market in a generation or more,” said Andrew Chamberlain, chief economist at recruiting site Glassdoor.

Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy.

Real wages were up nearly 3% in August of this year.

Per the Wall St. Journal, the Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is the report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015,

Home prices are rising steadily at over 5% year-over-year.

Home price gains are starting to decelerate (they are growing, but at a slower rate than last year)— but they’re still strong and are running well ahead of wage gains and inflation.

Inflation, the arch enemy of bonds and interest rates – is holding at the federal reserve target of 2%.

In a speech last week, Fed Chairman Jerome Powell suggested he sees little urgency to accelerate the central bank’s pace of interest-rate increases or to signal a more restrictive policy path ahead, in part because inflation is so low and stable.

Rates Today – and What We Can Expect

The stronger than expected economic data released over the last weeks and months are actually bad news for mortgage rates, and rates reached their highest levels in many years.

Last Wednesday’s bond rout sent the yield on the 10-year U.S. Treasury note, a closely watched barometer of investors’ sentiment toward growth and inflation, to its highest level since July 2011. Risky assets rallied, pushing the Dow Jones Industrial Average to a record and crude-oil prices to multiyear highs.

Together, the moves suggested investors are once again growing more and more about future growth, a shift from the more cautious outlook that many held for much of the year.

Interestingly, mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

Here’s a little perspective on average mortgage rates since 2000:

Graph Courtesy MarketWatch

With the Fed likely lifting rates multiple times over the next year plus, the trend for long-term mortgage rates is up. It would not surprise me to see 6% interest rates in 2019.

Here’s a piece I wrote earlier this year that outlines more regarding rates and what we can expect in 2019…

The Bond Market and Interest Rates

The U.S. unemployment rate fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Average hourly earnings, meanwhile, rose a seasonally adjusted 0.3% from August—the third straight month of solid, inflation-beating gains.

Fed officials raised their benchmark short-term rate last week and penciled in four more quarter-percentage-point increases through the end of 2019. That would lift the rate to a range between 3% and 3.25%. Until recently, many investors doubted the Fed would go that far.

The Fed is raising rates to keep the economy from overheating. If the economy becomes “too strong”, that could send inflation higher, and the Fed doesn’t want that to happen. They combat inflation by raising interest rates.

In essence, the bond market is starting to believe the Federal Reserve.

Finally, I’d invite you to read this article on how rising interest rates are not deterring buyers in today’s market…

What About Another Bubble?

Many clients are talking about a potential bubble, and they don’t want to be on the wrong side of it, if it were to burst.

However, most economists are not the slightest bit concerned about this.

Why? It’s about supply and demand. And the supply is tight. It isn’t forecasted to meet demand until sometime in 2021 or beyond.

Actually, it’s the lack of supply and the accompanying home prices quickly rising are the sources of market headaches.   Remember your Economics 101 class on supply and demand? When supply is down and demand increases, prices move up.

In reality, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also portends no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is steadily addressed.

As to new home building activity, housing starts did fall by a double-digit percentage in June, as mentioned above, but are up 7.8% year-to-date to June.

More will need to be built, as there is still a shortage. As more homes are built, an additional boost will be provided to the local economy along with more local job creations.

In Conclusion

So, it is safe to say that we will continue to see pressures in the bond market and mortgage interest rates overall. These increases do look to be gradual for the time being, but consistent and into 2019, for sure.

With that said, home prices are increasing nationally at over 5%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes.

Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

References:

https://www.wsj.com/articles/bond-investors-catch-up-with-feds-plans-1538767826

https://www.forbes.com/sites/lawrenceyun/2018/08/02/no-housing-recession-over-horizon/#3d8212a5f79c

https://www.wsj.com/articles/real-wages-are-rising-1536359667

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