TR-HNR-January-2019-Digital

FEATURED ARTICLE: 2019 HOUSING OUTLOOK

What will be the most important housing

market trend(s) in 2019 and why? 1

“Rents and house prices continue to rise strongly, outpacing income gains, creating increasingly serious affordability problems for lower- and middle-income households.”

U.S. HOME AFFORDABILITY TRENDS

PCT OF AVERAGE WAGES TO BUY MEDIAN-PRICED HOME

AVG 30-YEAR FIXED MORTGAGE RATE

60.0%

8.00%

ZANDI: The lack of affordable housing units. Construction of new homes for ownership and rental for lower- and middle-income households has significantly lagged demand. Va- cancy for these homes is very low and continues to decline, as builders have been slow to increase construction of affordable homes. There are a number of pernicious constraints on builders, including a lack of available labor, tight construction financing, high permitting costs, and the high cost of construction materials which is being exacerbated by the escalating trade war with China. Rents and house prices continue to rise strongly, outpacing income gains, creating increasingly serious affordabil- ity problems for lower- and middle-in- come households. “Continued increases in rates will see further weakening in these key housing measures while stabilization or a fall in rates could breathe new life into the market.”

MARK ZANDI

7.00%

50.0%

(Fixed Rate Mortgage) in 2018, and the housing market had a tough time adjusting. Home sales sagged, housing construction stalled, and home price appreciation moderated in response to higher mortgage rates. If economic growth remains solid, look for rates to gradually tick higher in 2019. Will the housing market absorb those higher rates and resume mod- est growth? I think so, but we’ll have to watch closely. KAPFIDZE: The path of interest rates will continue to dominate the housing market in 2019. The 150 bps increase in rates since 2016 has lowered affordability, which has had the follow-on effects on the housing market that we are experiencing. The slowdown in both sales and prices are a direct result of the increasing “Home sales and broader economic activity could slow more substantially in a handful of regional markets — primarily in the least affordable parts of the country — but it will pick up in more affordable areas.”

much more stable. Swings in real estate means home prices stalling for a while after 50 percent gain cumu- latively over, say, 70 straight months, though brought on by slowing home sales. Once prices slow to a crawl, the buyers will likely resume back into the market. All-in-all, no meaningful change to home sales or to home prices in 2019. That’s quite boring. TERRAZAS: Home sales and home value growth will slow but it won’t derail broader economic growth and won’t spill over into a broader downturn in 2019. Home sales and broader economic activity could slow more substantially in a handful of regional markets — primarily in the least affordable parts of the country — but it will pick up in more afford- able areas. KIEFER: The most important trend I’m watching in 2019 is whether or not the housing market adjusts to higher mortgage interest rates. The U.S. housing market remains out of balance due to a shortage of total housing supply (both owned and rented) relative to demand, and while mortgage rates slowed activity in 2018, construction needs to pick up to move the housing market back closer to balance. We saw rates increase about one percentage point for the 30-year FRM

6.00%

40.0%

5.00%

4.00%

30.0%

3.00%

20.0%

2.00%

10.0%

1.00%

0.0%

0.00%

cost of leverage for the marginal home buyer. Continued increases in rates will see further weakening in these key housing measures while stabilization or a fall in rates could breathe new life into the market. GARDNER: One of the most im- portant trends in housing next year will be the continued resurgence of first time buyers — especially mil- lennials — as they form new house- holds, get married and have children. Although many of them will face significant obstacles to buying due to student debt, lack of down payments and high-priced housing in many ar-

“The housing market in 2019, after a period of uncertain direction and swings, will turn out to be quite boring.”

LAWRENCE YUN

TENDAYI KAPFIDZE

eas, this demographic is likely to buy more homes in 2019 than any other age cohort. An equally important sto- ry in 2019 will be the move back to a balanced housing market — one that we have not seen in over 16 years.

key trends that will shape housing in 2019. Although there has been a pickup in economic activity and a strong labor market in 2018, total home sales are on track to decline this year for the first time in four years. The housing market suffered

YUN: The housing market in 2019, after a period of uncertain direction and swings, will turn out to be quite boring. The financial market is always vulnerable to wild volatility, suggest- ing elements of casino psychology at times, but real estate tends to be