FEATURED ARTICLE: 2019 HOUSING OUTLOOK
trade tensions, are downside risks. The base case is for an increase and rates could be up about 50 bps in 2019 if the economy evolves as currently expected by the Fed forecast. The implications of the rise in rates are what we have experienced the past year, a small decline in sales, a moderation in home price growth and sharp contraction in refinance originations. GARDNER: On average, mortgage rates have been rising since September of 2017, and I see no reason why this trend will not continue in 2019. My cur- rent forecast calls for the 30-year fixed conforming rate to rise to 5.5 percent
around 5.5 percent, but it may not reach that level until 2020. I’m antici- pating that the FOMC (Federal Open Market Committee) will go forward with two to three rate hikes in 2019 and longer-term rates, including mort- gage rates, to largely follow suit. Higher rates will dampen housing market demand and challenge potential buyers, but I expect a resilient economy (part of the reason rates will be higher) will help to boost incomes and some- what offset the sting of higher rates. KAPFIDZE: The labor market and inflation expectations are upside risks to rates while political instability, including
forecast for the housing market in 2019.
Where are mortgage interest rates headed in
2019? Why? Implications? 5
“A 30-year, fixed rate, conforming mortgage of close to 6 percent — which, while still low by historic standards, will impact certain buyers’ budgets and force some to consider smaller, less-expensive homes and/or homes in somewhat more affordable areas.”
ZANDI: Mortgage rates will increase in 2019. The rate on a 30-year fixed rate mortgage is expected to increase from close to 5 percent currently to near 5.5 percent by the end of 2019. Pushing mortgage rates higher will be a steady normalization in the Fed’s monetary policy (as) unemployment declines into the low threes and wage and price pres- sures develop more fully. The nation’s ballooning budget deficit, which will add to the supply on long-term bonds, and the winding down of the Fed’s balance sheet will add to long-term rates. YUN: The Federal Reserve will raise its short-term rates by two or three times (not four or five times) in 2019. Consumer price inflation may have al- ready peaked. The long-term interest rates need not rise too much, and the mortgage rates are projected to finish the year at near 5.5 percent. TERRAZAS: Mortgage rates will continue tomove higher in 2019 ending the year roughly 100 to 125 basis points above their current level —a similar magnitude increase to what we have seen over the course of 2018. This implies rates for a 30-year, fixed rate, conforming mortgage of close to 6 percent —which, while still low by historic standards, will impact certain buyers’ budgets and force some to consider smaller, less-expensive homes and/or homes in somewhat more affordable areas. Rising mortgage interest rates are also likely to push some would- be move-up buyers to reconsider selling, as the monthly costs for a comparable or possibly even smaller/lower-quality home rise as rates increase andmatch or even exceed the monthly costs of their current home locked in at a lower mortgage rate.
KIEFER: The era of high homebuyer af- fordability and dirt-cheap mortgage rates is probably over. The housing market, which has benefited by nearly a decade of super-lowmortgage rates will have to adjust to higher rates. That doesn’t mean we will have sky high rates though. Mortgage rates are likely headed above 5 percent for the 30-year fixed mortgage. That would be the highest rate in over seven years. Longer term I would expect the 30-year to settle
AARON TERRAZAS
by the fourth quarter of 2019; 6 percent mortgages are likely to be a 2020 story.
economic activity and anchored infla- tion, we expect 30-year fixed mortgage rates to rise to only 5.0 percent by the end of 2019, from about 4.8 percent in late November 2018. Monetary policy affects the economy with long and variable lags. Cumulative increases in interest rates have not yet had their full impact on the economy. At the same time, the Fed is reducing the size of its balance sheet by stopping reinvesting in maturing agency debt and mortgage-backed securities, which will likely widen mortgage spreads and increase mortgage rates. We believe that the Fed should pause after two rate hikes in the first half of 2019 to assess overall economic activity. However, the unemployment and inflation rates are lagging indicators. Thus, even if econom- ic activity starts to slow, the unemploy- ment rate will likely continue its down- ward trajectory. As the Fed believes in the negative relation- ship between the
DUNCAN: With the labor market continuing to tighten and inflation hovering around the Fed’s 2-percent target, we expect the Fed to stay the course, raising the target federal funds rate further in 2019. The Federal Open Market Committee (FOMC) members’ median projection for the federal funds rate at the September meeting implied three interest rate hikes in 2019. How- ever, we expect the Fed to raise rates twice in the first half of 2019 and then pause in response to signs of a slow- down in economic activity in the U.S. and abroad. We expect the unemploy- ment rate to start to rise in late 2019 through 2020 and expect inflation to ease at the same time. With our as- sumption that the Fed will slowly raise short-term interest rates amid slowing
MORTGAGE RATES & HOME PRICE APPRECIATION ANNUAL HOME PRICE APPRECIATION 30-YEAR FIXED MORTGAGE RATES
6.00
18%
16%
5.00
14%
12%
4.00
10%
3.00
8%
2.00
6%
Economist
2019 Mortgage Rates
unemployment rate and inflation, it may raise interest rates further to prevent an overheating econo- my. A faster pace of monetary tightening than expected is a key downside risk to our
Zandi
Up to 5.5% Up to 5.5%
4%
Yun
1.00
Terrazas
Up 100 to 125 basis points to ~6%
2%
Kiefer
Up to above 5% Up 50 basis points
Kapfidze Gardner Duncan
0.00
0%
Up to 5.5% Up to 5.0%
16 think realty housing news report
january 2019 17
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