We all wish we had a magic crystal ball to tell us what the future holds, but alas, as housing industry professionals, we have to rely on economic experts to give us an idea of where the market will take us for the upcoming year. Luckily, we've gathered some of their predictions here so you can start planning your strategy for 2019!
Nearly all the experts agree that mortgage interest rates will continue to climb over the next year. The Federal Reserve anticipates two to three rate hikes in 2019. We've already seen rates top 5% in 2018, and they may approach 5.5% or above as the year goes on. Realtor.com® also says higher rates are coming. However, Realtor® Magazine reports that this is not a sign of trouble, saying that rising rates are a sign of economic growth and that homebuyers will adjust, possibly by taking out more ARM loans, which traditionally have lower initial interest rates than fixed-rate mortgages. Whatever the reason, it’s the perfect opportunity to encourage your clients to buy now rather than wait until later, when they could be priced out of the neighborhood or size of home they really want.
According to Zillow®, home prices have gone up 7.7% as of October 2018, and Zillow expects that by the same time next year, they’ll have risen another 6.4%. Forbes offers more modest numbers — an average increase of 5% for 2018 and 3% for 2019 — but economists agree that despite the uptick in rates, home prices will continue their upward climb. The good news, however, is that home prices are rising at a slower rate. CoreLogic®, a data and analytics company, reports that home price appreciation was at its slowest pace in two years as of August 2018, and only increased by 0.4% in September. The Federal Housing Finance Agency (FHFA) reports that 35 states experienced slowdowns in appreciation in Q3 2018, and this trend of slow appreciation is expected to continue into 2019, although CoreLogic does predict that prices will have risen another 4.7% by September 2019.
The housing industry has been looking to new-home builders to provide much-needed inventory, but housing starts have been pretty slow because of the high cost of materials and lack of readily available labor. Nevertheless, housing starts continued an eight-year growth streak in 2018, and that’s not expected to stop next year. Lawrence Yun, Chief Economist for the National Association of Realtors® (NAR), predicts that an 8% rise in starts is not out of the question for 2019, and says an increase in inventory may also have a moderating effect on home prices.
While we may be facing higher rates and home prices, modest increases in home purchases are expected through 2019. The Mortgage Bankers Association expects home purchase originations to increase around 4% based on dollar volume.
The gains in the job market over 2018 may support that prediction, indicating that more people may be in a position to purchase a home in the coming year. ADP Research Institute reported that private-sector employment increased by 230,000 jobs in September (including a gain of 34,000 in construction). In addition, the Bureau of Labor Statistics reported that in October, U.S. wages grew 3.1% over the past year. This strong economic growth may provide the confidence buyers need to pursue their homeownership goals in 2019, even amidst rising rates and home prices.
While the market is facing some challenges, the important thing to remember is that interest rates are still currently at historic lows, and buying now is going to save borrowers hundreds or even thousands of dollars when compared to the predicted rates and home prices for next year.
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